Last week, the UK’s largest building society Nationwide launched a five-year fixed rate mortgage charging less than 4%, and more lenders are expected to follow its lead in the days ahead. With luck, this will be the start of a deluge of rate cuts.
Eight out 10 economists polled by news agency Reuters forecast that the BoE’s rate-setting monetary policy committee (MPC) will cut base rates from today’s 5.25% to 5% on Thursday.
It’s not a done deal, though.
Consumer price inflation may have fallen to the BoE’s target of 2%, but core inflation was relatively high at 3.5% in June with services inflation stuck at 5.7%.
So the MPC may delay until September but in any case, banks and building societies aren’t hanging around. They’re passing on cheaper borrowing costs today.
Mortgage rates rocketed past 6% in the autumn of 2022 adding £500 to the average monthly bill, after Tory PM Liz Truss’s mini-Budget unleashed financial chaos.
News that Nationwide has launched a five-year fixed rate charging just 3.99% is welcome. Sadly, it isn’t available to everyone.
It is only available on loans of a maximum 60% loan to value (LTV). Also, it is limited to property purchases, and is not available to people looking to remortgage to a cheaper deal. The deal has a £1,499 arrangement fee.
Nationwide’s new five-year fix to 75% LTV costs more at 4.43%, although it does have a lower fee of £999.
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said fixed mortgage rates are on a downward trend and other lenders should now follow Nationwide. “Typically, a brand with a large presence cutting rates can encourage other lenders to review their rates to stay competitive.”
Big high street names like Halifax, Lloyds Bank, Barclays and NatWest will all be reviewing their rates and Springall said: “There is much more room for improvement.”
Nicholas Mendes at broker Charcol anticipated good news for homeowners who need to remortgage. “I expect the biggest future reductions to be in remortgage rates, as they still have more room to fall.”
Buyers and homeowners face a tricky decision, though.
Some may want to take advantage of today’s lower mortgage rates, others may prefer to hold on in case the BoE cuts rates twice this year driving rates even lower.
Ben Thompson, deputy chief executive at brokers Mortgage Advice Bureau, said lenders have already priced in that all-important first BoE rate cut, whether it comes in August or September.
So he thinks there is little point in waiting. “Now is the time to get mortgage ready, speak to a broker, and see what your options are.”
Also, taking out a mortgage takes several months, and lenders may pass on interest rate cuts in that time
Mortgage finance is still pricey for first-time buyers and those with smaller deposits.
Last week Skipton Building Society launched its new first-time buyer range and this includes a five-year fixed rate charging 5.89% for loans up to 95% LTV, much higher than low-LTV rates.
On the plus side, there’s no fee and Skipton even gives buyers £1,500 cashback. Without cashback, the headline rate is lower at 5.69%.
Unusually, two-year fixed rate mortgages now charge less than five-year rates, as lenders anticipate lower borrowing costs further down the line.
This makes the mortgage decision a little bit harder and people should seek advice from a broker before deciding their next step.
While everybody will be watching out for the MPC’s rate decision on Thursday, banks and buildings societies have made up their minds. Borrowers might want to get their skates on, too.