BRITAIN’S biggest banks have launched a new mortgage price war battle.
Barclays and HSBC are slashing rates for the second time in two weeks.
It could bring some relief to borrowers scouring for a better deal, although in the higher interest rate environment many people looking to re-mortgage will still find rates are significantly higher than those they have previously been paying.
Some 1.6 million mortgages are coming off fixed rates this year, according to UK Finance.
Starting Friday, Barclays will lower its two and five-year fixed mortgage deals by up to 0.27%.
A fixed-rate mortgage is a deal in which you agree to an interest rate with the lender and pay the same one for the duration of the deal.
HSBC is expected to reveal the full details of its rate cuts on the same day.
Both banks already cut their rates last week.
But other major lenders have also joined the party.
Halifax cut its rates by 0.19 percentage points on Wednesday after an earlier cut of 0.23% this week.
Santander followed suit with reductions of up to 0.16% today.
Yorkshire Building Society also said it had reduced its mortgage interest rates by up to 0.20 percentage points “with immediate effect” today.
Nicholas Mendes, mortgage technical manager at John Charcol, said: “Since the general election was called, the swaps market has seen only marginal decreases, but a dip in activity has occurred as prospective buyers wait in hopes of new government incentives like increased stamp duty thresholds or more options for first-time buyers.
Swap rates, which underpin fixed-rate mortgages, have been fluctuating in recent months leading lenders to adjust their rates.
Lenders are also anticipating a Bank of England rate cut this summer, so have started to reduce rates in anticipation.
High street banks and lenders use the BoE base rate to set their own interest rates on mortgages, loans and savings accounts.
If it comes down, interest rates on mortgages, loans and savings accounts tend to fall too.
According to Nicholas, falling swap rates and a dip in demand have meant lenders are now trying to compensate for lost time.
He added: “Lenders have held rates longer than preferred and are now repricing as the election concludes.”
“Despite the absence of a bank rate decrease, the margin exists to allow for reductions.
“We can expect about two weeks of repricing before a pause as lenders adjust their margins to suitable levels.”
Mortgage lenders also tend to bring down rates in anticipation of the base rate falling.
Markets expect the Bank of England (BoE) to cut its base rate in August this year after policymakers kept it at 5.25% last month.
However, mortgage rates remain relatively high for millions of borrowers after successive BoE base rate hikes.
According to financial information website Moneyfacts, the average two-year fixed-rate homeowner mortgage rate on the market is 5.93%.
This is down from an average rate of 5.94% on Wednesday.
The average five-year fixed residential mortgage rate is 5.51%. This is unchanged from the previous working day.
Should you fix?
HERE we take you through the pros and cons of a fixed mortgage deal.
Pros
- Beat potential rate rises – You won’t feel the brunt if the Bank of England raises the base rate.
- You’ll only be credit checked once during the term – This means that if your score is lowered because you’ve taken out a credit card or store card after you’ve taken out the deal, then it won’t have an effect on your mortgage.
- Protection from changes to lending criteria – If mortgage affordability criteria is tightened then you might not be able to remortgage at a competitive rate. A fixed-term gives you more time to meet the criteria.
- Predictability – You know exactly how much your mortgage payments will be for the duration of the term making it easier to plan.
Cons
- You won’t benefit if rates fall – You risk missing out on lower rates if the base rate falls during this time.
- Early exit fees – Homeowners face forking out for hefty penalties if they need to end the contract early. These can be as high as 7% of the remaining balance.
- You’ll be charged for paying it off early – If your circumstances change and you want to make substantial overpayments or pay it off in full early, you’ll be charged.
- You could end up overpaying – Homeowners with more money to pay off are typically charged higher rates. Locking into a deal when you don’t have that much left to pay could see you miss out on lower rates and as a result you could end up paying more than you need to.
How to get the best mortgage deal
Snapping up the best mortgage deal depends on what’s available at the time, but there are ways to get ahead of the competition.
Usually the larger the deposit you have the lower the interest rate you can get.
If you’re remortgaging and your loan-to-value ratio has changed, this could also give you access to better rates than before.
A change to your credit score, or an increase in your salary can also help you access better rates.
If you have a fixed rate, you could see higher rates when you come to the end of the current term after the BoE hiked interest rates from 2022 and into last year.
And if you’re nearing the end of a fixed deal in the next six months it’s worth contacting your broker now to lock in a rate.
If they come down between now and the end of your deal, you can always apply for another rate before you remortgage.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it might be worth paying to leave the deal. Make sure you compare costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare for you, with most offering free advice to secure you the best deal for you.
Some brokers charge for advice, so ask them first.
It could cost a couple of hundred pounds but it might save you thousands on your mortgage overall.
You’ll also need to factor in fees for the mortgage, though some have none at all, or you can add it to the cost of the mortgage.
But, be aware that this means you’ll pay interest on it and it will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember, if you decide to remortgage to a new lender you’ll have to pass its affordability checks.
It may also check your credit file to check you have repaid previous debts.
You may also need to provide documents such as utility bills, proof of benefits, your last three months’ payslips, passports and bank statements.
It’s possible to avoid new affordability checks by remortgaging to a new deal with your existing lender, provided you don’t want to borrow more or extend your term.