HSBC is the latest lender to announce another wave of mortgage rate cuts, including a rate below 4 per cent.
From tomorrow, the bank’s cheapest five-year fix for people remortgaging will fall from 4.79 per cent to 3.94 per cent, according to industry insiders.
Its cheapest two-year fix will also drop from 4.93 per cent to 4.49 per cent, for remortgaging customers.
Both deals are best buys and will give some much needed respite to anyone approaching the end of their current fixed rate deal.
Best buy: HSBC is the latest mortgage lender to announce another wave of mortgage cuts, including a rate below 4%
An estimated 1.6 million mortgage holders are set to remortgage this year, with many bracing themselves for far higher rates than what they are currently on.
HSBC’s cheapest five-year fix will be available to eligible borrowers who are remortgaging with at least 40 per cent equity in their homes. This is when the mortgage amount equates to no more than 60 per cent of a home’s value.
The average five-year fix for these 60 per cent mortgage deals is currently 5.05 per cent, according to Moneyfacts.
The next lowest remortgage deal after HSBC is offered by Generation Home at 3.99 per cent. But after that, the next lowest rate is 4.49 per cent for remortgaging households.
> What next for mortgage rates, and how long should you fix for?
HSBC’s cheapest two-year fix may prove even more popular, given that many borrowers are banking on interest rates falling in the future.
Its 4.49 per cent rate for equity-rich homeowners is well below the market average of 5.39 per cent, and is better than the next-lowest rate on the market offered by Virgin Money at 4.6 per cent.
David Hollingworth, associate director at broker L&C Mortgages said: ‘These cuts are just the latest salvo in an increasingly fast-moving market.
‘These deals are offering some of the lowest rates since the spike in rates last summer.
‘Although borrowers coming to the end of their current fixed rate this year will still be looking at a rise in payments, these new lower rates will at least take some of the sting out of the inevitable rise.
Hollingworth added: ‘HSBC’s move is notable in that its rates are on offer to those borrowers looking to remortgage, a departure from the recent trend of pricing favouring homemovers.
‘With large numbers of borrowers anxiously approaching the expiry of a fix taken during the ultra low rate period, this is a welcome move and hopefully a signal for more lenders to follow suit, improving options for those facing payment shock.
‘These cuts follow hot on the heels of New Year improvements by Halifax and others will be bound to follow suit.
‘We thought the New Year would start with a bang and that’s proving to be the case.’
Will mortgage rates fall further?
Market commentators are almost certain we will see further rate cuts over the coming weeks.
Nicholas Mendes of mortgage broker John Charcol said: ‘In the past few days lenders have been looking to capitalise on pent-up buyer demand among those coming to the end of their fixed rates in the first half of 2024, so we should expect to see a continuous battle amongst lenders.’
The reason why brokers are so adamant that rates will fall further is due to market expectations surrounding the future of interest rates.
These market expectations are reflected in swap rates. These are agreements in which two counterparties, such as banks, agree to exchange a stream of future fixed interest payments for a stream of future variable payments, based on a set amount.
Mortgage lenders enter into these agreements to shield themselves against the interest rate risk involved with lending fixed rate mortgages.
Put more simply, swap rates show what financial institutions think the future holds concerning interest rates and mortgage lenders use these to price their fixed rate products.
Five-year swaps are currently at 3.43 per cent and two-year swaps are at 4.05 per cent – both well below the current base rate at 5.25 per cent.
Going down: Average fixed mortgage rates are falling back somewhat after a barrage of rate hikes during the first half of last year
‘It looks like lenders are likely to give early 2024 movers the belated Christmas present of lower mortgage rates,’ said Matt Smith, a mortgage expert at Rightmove.
‘After the reduction in swap rates we saw before the holidays, this is now starting to filter through to mortgage rates now that the festivities are over and the working year has begun.
‘Unless things change, the signs are positive that lenders will reduce rates further over the coming weeks.’
Chris Sykes, technical director at mortgage broker Private Finance adds: ‘I have heard on good authority from more than one other lender that we’ll be seeing increased levels of sub 4 per cent rates within the next week.
‘Lenders often want margins of around 0.3 to 0.5 per cent above swap rates depending on how keen they are pricing.
Sykes adds: ‘We are unlikely to see any two-year money at sub 4 per cent for a little while, with two-year swaps at 4 per cent currently, but we feel we will still see further drops.
‘It isn’t just the headline rates we are seeing drops in, we are seeing drops of average rates across the board, so helps the average borrowers too.’
Mortgage shock: Roughly 1.6 million people will face a mortgage shock next year when they remortgage as their low rates come to an end
What to do if you need to remortgage
As for those approaching their remortgage date, the advice is to to secure a mortgage offer as soon as possible.
Mortgage offers typically last for six months, which means borrowers can lock a rate in six months ahead of their current deal ending.
In the meantime they can always secure another offer if rates continue to tumble.
‘The issue lenders are facing at the moment is how fast they are able to move on changes,’ said Sykes.
‘Lenders will hedge their positions based on current loan requirements, however we as brokers are encouraging clients to lock things in as early as possible and are consistently changing rates as they go down.
‘We’ve saved clients hundreds of thousands, if not probably millions now in interest, and banks are having to swallow that.
‘So some of the mortgages lenders are doing at the moment are likely not all that profitable or even loss making given where lenders have hedged months earlier for that debt.’
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