Three prominent UK banks have announced reductions in the cost of fixed-rate mortgages. This shift marks a reversal from recent trends where mortgage rates were on the rise, bringing a sigh of relief to many.
Barclays Bank, HSBC, and TSB are the three financial giants leading this welcome change. Starting this Friday, these banks are set to make home loans more affordable.
Barclays Bank Takes the Lead
Barclays is slashing the rates on its five-year fixed-rate mortgages by up to 0.45 percentage points. For those with a substantial 40% deposit, the rate will drop from 4.47% to 4.34%. This adjustment applies to both new borrowers and those looking to remortgage their homes.
HSBC Follows Suit
HSBC is not only cutting rates on its two-, three-, and five-year home loans but is also phasing out its 10-year fixed-rate mortgages for remortgaging customers. This move could streamline options for borrowers and focus on more popular short and mid-term loan periods.
TSB’s Modest Cuts
TSB is also joining in with modest cuts, reducing rates by up to 0.10% on its two- and five-year fixed-rate deals for house purchases, starting Friday. These reductions, while smaller, will still contribute to the overall easing of mortgage costs.
Market Influences and Future Expectations
The recent price hikes in mortgages were driven by the dwindling prospects of a spring interest rate cut from the Bank of England. However, the tide has begun to turn with the fall in money market “swap rates” this week, which are pivotal in determining the pricing of fixed-rate mortgages.
Mark Harris, CEO of mortgage broker SPF Private Clients, highlighted the positive ripple effects of these cuts. “This latest round of mortgage rate reductions from some big lenders is great news for borrowers,” Harris said. He further explained that the decline in swap rates last week is the underlying cause for this adjustment, adding that such moves “should give other lenders confidence to make similar reductions, which will stimulate activity and provide a welcome boost for the market.”
Despite these cuts, the journey isn’t entirely smooth for all borrowers. According to data from Moneyfacts, a financial data firm, the average rates for two- and five-year fixed residential mortgages have shown little change recently. The average two-year fixed rate stands at 5.92%, and the five-year rate at 5.49%.
Particularly for those remortgaging from a two-year fixed rate deal, the jump in repayments remains substantial; in May 2022, the average rate for such a deal was only 3.03%. Thus, while the rate cuts are a step in the right direction, they don’t entirely offset the higher rates borrowers have faced due to economic fluctuations over the past year.
Economic Outlook
Looking ahead, a Reuters poll released on Thursday sheds some light on economic forecasts. Just over half of the economists surveyed anticipate the Bank of England to reduce rates to 5% in August, with about 43% predicting a rate cut as soon as June.