- Author, Kevin Peachey
- Role, Cost of living correspondent
HSBC has joined two other major lenders in reducing mortgage rates following hints of a summer base rate cut by the Bank of England.
Barclays cut the cost of its fixed-rate home loans for new deals on Tuesday, following an earlier move by NatWest.
HSBC’s cuts will come into effect on Wednesday, with brokers expecting more mortgage companies to follow suit.
However, these reductions are small in the wider context. Borrowers still face relatively high costs, with many paying significantly more in monthly repayments when current cheaper deals expire.
Average mortgage rates had been creeping up, driven by a lack of fresh competition between lenders during the election campaign.
The average rate on a two-year fixed deal stands at 5.96% according to the financial information service Moneyfacts. It said the average five-year deal had a rate of 5.53%.
“These moves [by HSBC and others] suggest that the recent edging up in rates is now unwinding and most cuts are being made in small steps,” said David Hollingworth, from broker L&C.
The interest rate on a fixed mortgage does not change until the deal expires, usually after two or five years, and a new one is chosen to replace it. Doing nothing would leave people on a variable rate, which can be very expensive.
About 1.6 million existing borrowers have relatively cheap fixed-rate deals expiring this year.
Although spring tends to bring more activity in the housing market, this may have been dampened as potential buyers wait for more political certainty.
Borrowers will also be watching for whether the Bank of England’s Monetary Policy Committee (MPC), which sets interest rates, opts for a cut at its next meeting on 1 August.
Optimism about such an outcome may have led to the latest moves by major lenders. The banks may also be jostling for custom.
Andrew Montlake, from mortgage broker Coreco, said: “Lenders will be keen to kickstart a market lethargic from the election, hot weather and football.
“The country desperately needs the boost of a cut to relieve some of the financial pressures that have held back the economy and put borrowers under immense pressure.”
However, he said positive news about falling inflation may only be temporary, and could lead to more caution from the Bank.
Michelle Lawson, from Lawson Financial, said borrowers were “beleaguered” but more lenders could cut rates in the coming days.
Separate figures published on Tuesday by UK Finance, which represents lenders, showed a further drop in the number of people paying only the interest on their home loan, despite the tough current conditions for borrowers.
