Big Lenders Reduce The Cost Of Mortgages Ahead Of Rate Cut

Brett Hurll

In an increasingly competitive banking landscape, the United Kingdom's mortgage market is witnessing a significant shift as leading lenders are returning to the market and offering low mortgage rates. This trend, marking the lowest levels in half a year, signals a robust contest among major banks.

The Co-operative Bank, Santander, and Barclays have emerged as frontrunners in this race, each rolling out mortgage deals with rates dipping below the 4 percent mark. The Co-operative Bank recently introduced a fixed-rate mortgage at 3.84 percent, a figure unmatched since the previous summer. Meanwhile, Santander's five-year fixed-rate now stands at 3.89 percent, and Barclays has adjusted its rates by as much as half a percentage point, primarily aiding new home buyers over those looking to remortgage. Additionally, Halifax is not far behind, offering five-year loans starting from 4.28 percent.

This strategic maneuvering by banks is largely attributed to the anticipation of policy shifts from the Bank of England, with expectations of a reduction in interest rates later in the year. According to Nick Mendes, a mortgage expert at John Charcoal, the current scenario reflects a strong desire among lenders to compensate for a potentially sluggish 2023 by narrowing their profit margins as much as possible.

The tail end of 2023 saw a proactive approach from lenders, preparing for a bounce-back in housing market activities. Generation H was a pioneer during this phase, introducing a sub-4 percent deal, soon followed by HSBC, one of the first major high-street lenders to offer rates below 4 percent, a move that buoyed the hopes of numerous homeowners renegotiating loans. This trend is a remarkable shift from the central interest rate of 5.25 percent, a stark increase from the 0.1 percent low during the pandemic.

Market analysts are forecasting potential rate reductions over the coming years. However, recent trends in swap rates, which are pivotal in setting fixed-rate mortgages, suggest a possible short-term deviation from the sub-4 percent deals.

Chris Sykes, Technical Director at Private Finance, expressed his astonishment at the rates offered by Co-op, hinting at their unsustainable nature in the long run. Nonetheless, Mendes remains optimistic, suggesting that any potential pause in rate drops would likely be a minor blip rather than a significant setback.

Indeed, data from Moneyfacts corroborates this trend of decreasing mortgage rates. At the beginning of December, the average five-year fixed rate was at 5.65 percent, which has now dropped to 5.37 percent. This reduction translates to a substantial annual saving for borrowers.

As the market adapts to these new conditions, the prospect of sub-4 percent rates becoming the norm seems increasingly plausible, heralding a new era in the UK mortgage landscape.