Five-year fixed-rate mortgages priced at below 4% are back on sale for the first time since just after the disastrous autumn mini-budget.
HSBC has repriced its range and introduced a new five-year fix at 3.99% for customers remortgaging who are looking to borrow up to 60% of the property’s value. It means people are able to fix their monthly home loan costs at a level below the Bank of England base rate, which rose to 4% last Thursday.
Kwasi Kwarteng’s mini-budget on 23 September last year unleashed chaos in the financial markets, and helped push the price of many new fixed home loan deals above 6%.
However, over the past couple of months lenders have been gradually reducing the cost of their new fixes, and some mortgage brokers have gone as far as to claim there is a “price war” between lenders, with lower rates appearing daily.
In testimony to MPs on Tuesday, HSBC chief executive, Ian Stuart, contrasted the current sub-4% rates with the situation in December, when 60,000 HSBC borrowers were facing levels of 7%. “If you heard the strain in our customers, the anxiety in our customers was palpable,” he told the Treasury select committee.
Late last week, Virgin Money launched a 10-year fixed-rate mortgage priced at 3.99%, though many people are not keen to sign up to a deal of that length.
David Hollingworth, an associate director at the broker L&C Mortgages, said that although those coming to the end of a fixed rate taken out when deals were at record lows would still be faced with higher payments, “it’s a far cry from the prospect of rates at 6% or more”.
The pricing of new fixed deals is largely determined by money market “swap rates”.
Steven Morris, a director at the Bristol-based broker Advantage Financial Solutions, said the pricing changes were proving a challenge for his profession.
“Every time we apply for a fixed rate for a customer, within no time it’s cheaper elsewhere,” he said. “I am currently on application number six for the same client in a bid to get them the best deal.”
Many brokers have been reporting a big jump in interest in base-rate tracker mortgages from people betting that interest rates have peaked.
Some are advising clients who are buying a home or remortgaging to take out a tracker mortgage with no early repayment penalties for the time being, and then switch over to a fixed-rate deal once the pricing on these has settled down in a few months’ time.
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Mortgage rates are coming down, but MPs at Tuesday’s Treasury select committee meeting demanded bosses of the four largest UK banks justify why interest rates for most easy-access savings accounts were – in some cases – still hovering around 1% despite the rise in the Bank of England base rate.
“Why are you so ungenerous on instant savers, giving so little back in terms of interest rates, compared to what you charge borrowers?” the Labour MP and committee member Angela Eagle said. “It’s about profitability, isn’t it?”
HSBC’s Stuart, as well as NatWest chief executive Alison Rose, Lloyds Banking Group boss Charlie Nunn and Barclays UK chief executive Matt Hammerstein, all broadly denied the accusation, arguing that fixed savings products were offering more generous rates of about 5%-7%.
They also downplayed the role that higher income charges would have on their own bonuses. While profits would be considered when setting variable pay, Rose said “we would not be able to meet performance [targets] by … net interest margin”.
Nunn also noted that rising interest income would, at least in part, be offset by the money put aside to protect banks from potential borrower defaults during the pending economic downturn. “We need to make sure we have financial resilience to support customers through a recession, to have the right capital … And so from an overall profitability perspective, I think that’s important context,” he said.
While bosses said they were not seeing any signs of stress in their mortgage books to date, Stuart said there could be further pain ahead. “The headwinds, they are ahead of us. They’re not behind us,” he said, with executives assuring they were actively reaching out to customers who still might struggle as they remortgage on higher rates.
