Lenders Cut Mortgage Rates in Start of Price War as Struggling Homeowners Receive a Needed Boost
By Jessica Beard Deputy Money Editor Updated: 00:04 BST, 15 September 2023
Struggling homeowners received a much-needed boost yesterday as a five-year fixed-rate mortgage deal below 5% went on sale for the first time since June. This development has sparked what brokers are calling a “full-blown price war” that is now in full swing, with interest rate cuts becoming increasingly frequent.
Britain’s largest lenders have been reducing rates over the past few days, offering relief to borrowers who were hit hard by soaring rates over the summer months. The latest announcement came from The Mortgage Works, owned by Nationwide Building Society, which introduced a five-year fixed-rate deal priced at 4.99%. However, this deal is exclusively available to buy-to-let borrowers who have a loan-to-value ratio of 55% or lower and incurs a 3% fee.
This is the first time a fixed-rate home loan has fallen below the 5% mark since the end of June, according to industry experts. Currently, Santander offers the best five-year fixed rate for residential mortgages at 5.1%, while Cumberland Building Society provides the best remortgaging five-year fix at 5.22%, as reported by broker L&C.
Ranald Mitchell, a broker at Charwin Private Clients, believes that The Mortgage Works’ new rate of 4.99% will put pressure on other lenders to follow suit. “Seeing rates starting with a four is a sight for sore eyes and could provide a stimulus to the market and borrower confidence,” he commented. Similarly, Gary Bush, a financial adviser at MortgageShop.com, stated that lenders have transitioned from “shut-up-shop mode to full-blown price war mode,” predicting a busy end to 2023 in the mortgage market.
In addition to The Mortgage Works, lenders like Halifax and Coventry Building Society have also recently reduced their rates. Barclays has announced plans to cut costs, and Nationwide and Santander have already implemented reductions. Challenger banks Skipton Building Society and MPowered Mortgages have also taken steps to lower their rates. These collective rate reductions are raising hopes that mortgage costs have reached their peak.
Bank of England governor Andrew Bailey recently informed MPs that the end of rate increases is now “much nearer.” Nevertheless, he cautioned that borrowing costs could still rise due to high inflation. After 14 interest rate hikes since December 2021, the rate currently stands at 5.25% and is expected to rise further to 5.5% next week. Some have voiced concerns over the Bank of England’s decision to increase interest rates, fearing that this could lead to a recession following the release of figures indicating a 0.5% contraction in GDP in July.
Despite these potential risks, homeowners can find some relief from the current situation. Data suggests that inflation has slowed, prompting lenders to reprice their rates to secure a larger market share. However, there are concerns that these rate reductions may not be sufficient to save the housing market, which saw the fastest decline in house prices in 15 years in August. Higher interest rates have dampened buyer demand, causing many individuals to postpone property purchases in the hope that rates will decrease in the coming months.
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