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Mortgage rate cuts are reducing costs for UK borrowers, as the market looks ahead to an expected late-summer cut to interest rates by the Bank of England.
Halifax trimmed rates on several mortgage products on Friday for the second week running, joining Santander, TSB, Virgin Money and Cooperative Bank, which have all dropped borrowing rates in the past two weeks.
Barclays, which started the current wave of cuts last month, now has five-year fixed rates as low as 4.08 per cent for some customers, and two-year deals at 4.49 per cent.
Brokers are anticipating the cheapest rates could soon dip below 4 per cent, a threshold that could encourage some would-be borrowers.
“The much-anticipated wave of rate cuts seems to be gathering pace, and we have seen most of the big lenders lower their rates in recent weeks. Some of the price cuts have been quite chunky,” said Aaron Strutt, a director at broker Trinity Financial.
The spate of mortgage rate cuts comes as markets anticipate the Bank of England will cut interest rates in August or September from their 16-year high of 5.25 per cent.
Inflation data for June, released on Wednesday, showed annual price increases were steady at 2 per cent, which is the central bank’s target level.
“As we get closer to the likely base rate cut, stability in the economy is exactly what we need to keep plans on course . . . In the meantime, we expect to see mortgage rates continue to fall back as lenders compete for business,” said Matt Smith, Rightmove’s mortgage analyst.
The five-year Sonia swap rate, used by UK lenders to price loans, has dropped to 3.8 per cent from 3.91 per cent a month ago.
Further declines in the cost of loans is good news from the property market, which has been stuck on idle since rates spiked higher in late 2022.
Simon Gammon, managing partner at Knight Frank Finance, said rates could move below 4 per cent this year if current trends continue, which “could well be the trigger point . . . for people to move forward” with purchases and new fixed rates.
“A rate starting with a three feels more acceptable,” he said.
Affordability constraints for buyers facing high interest rates will probably hamper the new Labour government’s ambition for a boom in home building, since commercial builders will limit their output based on the rate of sales.
“It is pretty clear that many borrowers simply are not prepared to pay rates closer to 5 per cent and they are waiting for mortgages to come down,” Strutt said. “For the first time in a while it seems likely we will get a sub-4 per cent five-year fix soon. This seems to be the cut-off point where many borrowers feel like they are getting reasonable value for money.”
However, Andrew Wishart, senior UK economist at consultancy Capital Economics, warned against too much optimism around a big pick-up in the number of property sales. He said the markets currently leave “only limited scope for mortgage rate reductions”.
