Santander and Halifax among lenders dropping mortgage rates – how long it will last

Some of Britain’s biggest mortgage lenders are cutting rates again, raising hopes that borrowers could finally be past the worst of the mortgage crunch.

Halifax, Barclays, and Santander are amongst the latest banks to reduce selected fixed-rate deals as competition intensifies for buyers and homeowners approaching remortgaging.

But at the same time, NatWest moved in the opposite direction by increasing some deals last week.

The changes come after months of volatility driven by inflation fears, global conflict and uncertainty over the path of Bank of England interest rates.

While rates are easing from recent highs, brokers warn the market remains fragile, and borrowers should not assume dramatic falls are guaranteed to continue, even with reports of a possible de-escalation of the Middle East conflict.

Here, The i Paper takes a look at why lenders are cutting rates, whether it could continue, and what borrowers should be doing now.

Why are lenders cutting mortgage rates?

Mortgage pricing is influenced by many factors, including lenders’ need to drum up business, and swap rates, which reflect where financial markets think interest rates are heading in future.

Interest rates – set by the Bank of England every six weeks – tend to rise when inflation is way above the Bank’s 2 per cent target level, and some economists think rises could come later this year.

Nick Mendes of John Charcol said many borrowers wrongly assumed fixed mortgage rates moved only when the Bank changed the base rate – currently 3.75 per cent.

He said: “Mortgage rates do not move just because the Bank changes the bank rate. They move on expectations.”

Last week, Santander cut rates by up to 0.27 percentage points, along with other lenders that made reductions, but brokers said this was more to do with a need to attract customers than because the cost of lending had reduced.

The cheapest deals on the market, for buyers with a large deposit, now sit at around 4.4 per cent.

Mendes said: “The latest rate cuts are encouraging, but they need a bit of context. This is not a market where funding costs have suddenly collapsed. It is more a case of lenders competing harder for business where they have room to move.”

David Hollingworth, associate director at L&C Mortgages, warned the inflationary effect has not gone away and rates remain elevated compared to where rates were at the end of February.

For context, the average two-year mortgage fix was priced at 4.81 per cent in January. After the US-Israeli war with Iran, these moved up to 5.89 per cent, and though they have fallen back, this is only to 5.73 per cent.

How long could mortgage rates fall for – and how low could they go?

Most brokers believe mortgage rates may edge slightly lower over the coming months, but few expect a dramatic fall unless inflation drops more decisively and global tensions ease.

Hollingworth said the outlook depended heavily on inflation and geopolitical developments.

He said: “As things stand, I think that we are at a point where fixed rates may be levelling out. Some are still edging down but others are being lifted, so it’s already becoming a mixed picture.”

Justin Moy, of EHF Mortgages, was also cautious about the prospect of significantly cheaper mortgages, predicting rates would remain around current levels for some time.

But he warned inflation could still push borrowing costs back upwards. Inflation came in lower than expected in last week’s reading at 2.8 per cent, but there are expectations of rises later this year.

Moy said: “Borrowers should be careful about expecting a dramatic fall. For mainstream fixed rates to move materially lower, markets would need much stronger confidence that bank rate cuts are coming and that inflation is not going to re-accelerate.”

What should buyers and remortgagers do now?

Brokers say borrowers should avoid trying to perfectly time the market and instead focus on securing a competitive deal early.

Many lenders allow borrowers to lock in a mortgage rate up to six months before their existing deal expires, while still retaining the ability to switch onto a cheaper product later if rates improve before completion.

Hollingworth said: “Keeping a focus on securing a deal at the end of their current rate. That means shopping around a good few months ahead.

“Securing a deal now will protect against any potential hikes. It also gives enough flexibility to review the deal again before completion and if the market improves then a switch to a lower rate can be put in place.”

If you’re a buyer, you can lock in a deal once your offer is accepted, and usually move to a cheaper one before exchange of contracts if rates drop in the meantime.

Tracker mortgages are also becoming more attractive to some borrowers because they often come with lower fees and fewer early repayment charges.

Hollingworth said: “Trackers are definitely attracting a bigger proportion of borrowers in recent weeks, although fixed rates still seem to be the preference of most.

But brokers warned trackers remained a risk if inflation stayed high and interest rates failed to fall as expected.

For first-time buyers, experts say the focus should remain on affordability rather than waiting endlessly for cheaper rates.

Moy said: “Now is a good time to buy for first-timers if you look at the potential for a property price reduction being higher than the increase in mortgage costs for the next few years.

“For example, obtaining £10,000 off the purchase price, but the new mortgage costs £3,000 to £4,000 more over the next few years. It’s the ideal time to buy, not so great to sell.”

Brokers warned against trying to wait for the perfect moment though, with Moy adding: “Waiting for a change that may not happen, and then being caught with higher costs on renewal, or postponing that purchase until a time prices go up and rates do start to fall – the bargains would have been gone by then.”

المصدر: iNews