Major UK mortgage lenders have reduced their fixed rate deals this week as a mini price war gets under way in a boost to the housing market slump.
Barclays became the latest lender to announce cuts on Thursday afternoon, dropping selected two and five-year fixed rates by 0.1 percentage points from Friday.
It reduced the rates of its 60 per cent loan-to-value two and five-year fixes with £999 product fee from 5.98 per cent to 5.88 per cent and from 5.37 per cent to 5.27 per cent.
On Wednesday, Halifax, the UK’s largest mortgage lender, announced reductions of up to 0.5 percentage points on selected deals, taking effect from Friday, including a five-year fix at 5.15 per cent.
It came as The Mortgage Works (TMW), Nationwide’s buy-to-let mortgage lender, announced an eye-catching five-year fixed-rate deal at 4.99 per cent, with a 3 per cent fee.
Gary Bush, financial adviser at the Potters Bar-based MortgageShop.com, said: “The mortgage rate war is well and truly under way and it’s looking likely that there will be a busy end to 2023.”
Justin Moy, founder at Chelmsford-based mortgage broker, EHF Mortgages, offered a note of caution.
He said: “These small but welcome reductions from Barclays bring them in line with the rest of the high street lenders. It does feel like lenders are now waiting for the next set of inflation data before they consider any larger cuts. This is rate tinkering rather than rate war.”
Describing the reductions by Halifax and TMW as “significant”, he added: “The extent of the changes suggests that we should be seeing good inflationary figures this month, too.
“Halifax is bringing its products more in line with the rest of the High Street lenders, whereas the sub-5 per cent five-year fixed buy-to-let deal from The Mortgage Works is undoubtedly the headline grabber.
“The market is definitely improving and let’s hope for more positive economic data in the days and weeks ahead.”
In another positive sign for homeowners, Nationwide cut selected fixed-rates by up to 0.29 percentage points on Wednesday, while Santander reduced selected new fixed-rate offers by up to 0.14 percentage points.
Lenders cut rates across the board last month, after inflation figures were better than expected, despite the Bank of England raising the base interest for a 14th successive time.
The Bank is expected to increase the rate another quarter point next week, bringing it to 5.5 per cent.
David Hollingworth, of London & Country brokers, told i that an additional hike should have “little impact” on rates for fixed-rate mortgages.
“If inflation numbers are positive next week, then it could help inject further momentum in the cutting of rates,” he said.
While the downward trend of rates offers hope for first-time buyers, hundreds of thousands of homeowners will still face sharp increases in their monthly payments as their fixed-term deals lapse in the coming months.
Mortgage rates have risen sharply since the Bank of England began hiking the base interest rate in December 2021, when the average two-year fixed deal was 2.34 per cent.
On Tuesday, the average price of a two-year fixed mortgage sat at 6.66 per cent – nearly triple what it was three years ago.
According to UK finance, 800,000 fixed-term mortgages are ending in the second half of 2023, with another 1.6 million set to close next year.
Meanwhile, house sales have fallen to their lowest level since the pandemic, according to the Government’s latest figures.
Just 336,860 property transactions took place between April and July this year, down 21 per cent on the same period last year and the lowest figures since the Covid period.
Speaking to The Telegraph, James Bull, of Huddersfield-based broker JB Mortgages, said: “Throughout the year, the purchase market has really slowed as the impact of higher mortgage rates has kicked in.
“There are regional variations but the one constant is that only realistically priced properties will sell. But many existing homeowners see this as a bad time to sell a house so there are not enough properties for sale to meet the demand.”
