Relief for homeowners as big lenders cut mortgage rates

Three high street lenders have reduced mortgage rates on more than 100 deals in a boost for borrowers who have faced weeks of increases.

Barclays will reduce fixed rates on purchase and remortgage deals by up to 0.45 percentage points on Friday. It will cut the rate on one of its five-year fixes from 4.77 per cent to 4.32 per cent for borrowers remortgaging with a 40 per cent deposit.

HSBC will reduce interest rates on more than 100 of its deals fixed at two, five and ten years for homeowners and landlords. TSB has cut rates on some of its two and five-year deals by up to 0.1 percentage point.

Brokers are confident the rate cuts will spur other lenders to follow suit. Hina Bhudia of Knight Frank Finance said: “HSBC already had many of the cheapest deals on the high street, so this is quite a statement of intent. We’ll have to wait and see but I’d be surprised if we don’t see more lenders cut rates in response.”

The cuts follow weeks of rising mortgage rates. Lenders increased costs last month and early this month after forecasts of an interest rate cut by the Bank of England were pushed back because of stubborn inflation and a rise in swap rates — a market indicator used by banks and building societies to price their fixed loans.

But when the Bank held borrowing costs at a 16-year high of 5.25 per cent last week, it signalled a rate cut could come as soon as next month if inflation continued to fall. Lenders have also been buoyed by a fall in swap rates over the past week. Two-year swaps have fallen from 4.57 per cent to 4.46 per cent, while five-year swaps have dropped from 4.02 per cent to 3.9 per cent.

Mark Harris, of the mortgage broker SPF Private Clients, said: “This flurry of rate reductions from some of the major lenders is great news for borrowers. Lenders tend to follow the herd when it comes to mortgage pricing, so these cuts should give others the confidence to reduce their own rates, boosting market activity and confidence.”

The average two-year fixed rate is 5.92 per cent and the average five-year deal is priced at 5.49 per cent, according to the analyst Moneyfacts, although these include deals for borrowers with adverse credit ratings and small deposits, for which rates are typically higher.

Some 800,000 households will come off a fixed-rate deal and on to a higher rate between now and November, according to analysis by the Liberal Democrats and the House of Commons library. Nicholas Mendes of the broker John Charcol said there was “significant potential” for more rate reductions in the next two weeks.

He said: “Financial markets have adjusted their forecasts, signalling a potential end to the recent trend of lenders increasing their rates. For those who have recently applied for a mortgage, you may have the opportunity to switch to a lower rate given the change in market conditions, which could result in substantial savings over the term of your mortgage.”