Several major lenders in the UK have decided to cut their mortgage rates just before the Bank of England (BoE) announces its latest decision on interest rates this Thursday.

Halifax, one of the UK’s largest mortgage lenders, has taken a bold step by reducing its mortgage rates by a substantial 0.53 percentage points, starting from Thursday. This move is likely to be welcomed by both current and prospective homeowners, as it could mean lower monthly payments for many.

Other Lenders Follow Suit

Other lenders have also announced rate reductions:

• NatWest has withdrawn several of its loans, indicating upcoming rate changes.
• Leeds Building Society reduced its rates by 0.5 percentage points.
• Skipton Building Society made a notable move on Tuesday, cutting rates on residential and buy-to-let deals by up to 0.46 percentage points. Its five-year fix rate buy-to-let loan saw a significant drop from 4.95% to 4.49%.
• TSB is not far behind, with cuts on various loans by up to 0.85 percentage points.

The BoE’s monetary policy committee is widely anticipated to maintain the interest rate at 5.25% this Thursday. However, there’s a growing belief that the central bank might start reducing rates this summer as inflation continues to slow down.

A Temporary Relief?

Andrew Goodwin, a leading UK economist at Oxford Economics, warns that these rate cuts might be a temporary phenomenon. He notes that the rise in swap rates in January – a key factor in pricing fixed-rate mortgages – could mean that mortgage rates may not continue to fall and might even increase in the coming months. This could happen if the BoE delays cutting interest rates more than expected.

Swap rates, crucial for setting fixed-rate mortgage prices, have seen a marginal increase, with two-year swaps up by 0.18 percentage points and five-year swaps by 0.27 points compared to last month.

A Mini Rates War and Predictions

Since January, lenders have aggressively cut rates, leading to a competitive ‘rates war’. Many lenders had accurately predicted that the BoE would keep rates at 5.25% in December, leading to this proactive approach.

According to Moneyfacts, a financial analyst firm, the average two-year fixed-rate mortgage is now at 5.56%, while the average five-year fixed rate stands at 5.19%.

December saw a slight decrease in average interest rates on new mortgages – the first such fall since 2021. The effective interest rate on new deals dropped to 5.28% last month from 5.35% in November.