Mortgage price war set to intensify as Halifax, HSBC lead charge slashing rates
The new year has kicked off with a mortgage price war, according to brokers, as lenders slash deals to compete for business in a market under pressure from high interest rates.
The raft of cuts indicates lenders’ hope that the Bank of England will lower interest rates in the coming months.
Generation Home released a 3.94 per cent five-year fixed deal on 20 December – the first under four per cent – but most lenders did not reduce rates over the quiet Christmas period.
HSBC has also joined the sub-four per cent club, announcing a five-year remortgage deal of 3.94 per cent for homeowners borrowing up to 60 per cent of the property’s value.
Tuesday, the first working day of the new year, saw a slew of banks cut rates.
Halifax, the country’s largest mortgage lender, slashed its two-year remortgage rate by 0.83 per cent percentage points.
Other lenders under Lloyds Banking Group, including Scottish Widows and BM Solutions, also made cuts.
Leeds Building Society lowered rates on 90 deals by as much as 0.49 per cent, giving it the cheapest two-year deal for homebuyers on the market at 4.6 per cent.
The mortgage market has shrunk and become increasingly competitive as customers adjust to a higher interest rate environment and banks come under pressure to deliver better deals.
“We will almost certainly see further reductions in rates over the next few weeks as lenders react to the reductions in swaps we saw before Christmas,” Chris Sykes, technical director at Private Finance, told City A.M.
“We will hopefully start to see more five-year fixed rate options at sub four per cent.”
Sykes noted that some of the latest deals are unlikely to be very profitable and may even be loss making as lenders have hedged positions months ago at higher rates.
“We as brokers are encouraging clients to lock things in as early as possible and are consistently changing rates as they go down, and banks are having to swallow that,” he added.
Sykes forecasted further drops in two-year deals but said they were unlikely to go below four per cent in the near term given the corresponding swap rate.
Mortgage rates are influenced by SONIA swap rates – the main interest rate benchmark in sterling markets.
Five-year swaps are currently at 3.41 per cent, while two-year swaps are at 4.02 per cent. Both swaps have fallen more than 0.5 per cent in the last month.
Sykes noted that lenders’ margins on swaps are often around 0.3-0.5 per cent “depending on how keen they are pricing”.
“I expect that the price war is going to intensify this month and continue to reduce this year,” said Ashley Thomas, director at Magni Finance.
“I expect many lenders to be below four per cent soon and wouldn’t be surprised to see two-year fixed options below this as well.”
Matt Smith, Rightmove’s mortgage expert, added: “It looks like lenders are likely to give early 2024 movers the belated Christmas present of lower mortgage rates. After the reduction in swap rates we saw before the holidays, this is now starting to filter through to mortgage rates now that the festivities are over and the working year has begun.
“Unless things change, the signs are positive that lenders will reduce rates further over the coming weeks. Combined with the early-year bounce in home-mover activity we’re starting to see, lenders who price more competitively can expect growing interest from those looking to take out a mortgage soon.”
High interest rates and the cost-of-living crisis have dampened mortgage activity in the last year, while increasing numbers of homeowners are falling behind on their payments.
Banking trade body UK Finance projected last month that gross mortgage lending lending would fall five per cent to £215bn in 2024 after plunging 28 per cent to £226bn in 2023.
Kevin Roberts, managing director of Legal & General Mortgage Services, said better rates would be “welcome news for the 1.8m people who need to remortgage this year”.
He added: “Although they are still likely to face higher rates than they would have experienced two years ago, these lower rates do present an opportunity over the coming weeks and months.
“Ultimately, we’d always suggest homeowners, and prospective buyers, seek independent mortgage advice, wherever they stand on the property ladder. Advisers can provide guidance for a wide range of circumstances and can help source deals not routinely available directly to borrowers.”
Updated to include HSBC