Mortgage rate battle steps up as Barclays and TSB cut costs

The mortgage rates battle has stepped up another gear as Barclays and TSB have cut again.

The two high street banks have made the announcements following Nationwide’s mortgage cuts yesterday that saw the lowest five-year fix deal dip below 4 per cent for the first time since February.

Barclays, which already cut rates earlier this month, is lowering selected fixed deals by up to 0.36 percentage points, which will include some new best buys.

Meanwhile, TSB, which also cut rates last week, is back at it again with cuts of up to 0.2 percentage points.

The lower rates on offer with both lenders look set to benefit home homers, remortgaging customers and first-time buyers.

Nicholas Mendes, mortgage technical manager at broker John Charcol said: ‘Barclays and TSB’s latest reductions in mortgage rates are great news for borrowers. 

‘The cuts, which mostly range from 0.1 per cent to 0.2 per cent, reflect strong market competition as the anticipated reduction in the base rate draws nearer. 

‘These reductions will provide significant savings for those looking to secure a mortgage or remortgage, making it an opportune time to consider locking in a fixed rate.’

Andrew Montlake, managing director at mortgage broker Coreco told the News agency, Newspage: ‘It’s life by a thousand cuts for the mortgage market. Rarely a day goes by without a number of lenders shaving their rates further. 

‘Nationwide going sub-4 per cent this week was a symbolic moment and more lenders are likely to follow suit. 

‘Lenders seem to be pricing in the fact that a base rate cut is coming very soon.’

Are there any new best-buy mortgage deals? 

From tomorrow, Barclays will be home to the lowest two-year fixed rate on the market.

Its 4.42 per cent deal comes with a £899 fee and is available to home movers buying with a 40 per cent deposit or equity.

It narrowly beats both Halifax and Nationwide, which have two-year fixes as low as 4.46 per cent.

Someone securing the two-year fix with Barclays on a £200,000 mortgage being repaid over 25 years can expect to pay £1,103 a month.

Barclays will also cut remortgage rates with its lowest five-year fix dropping from 4.36 per cent to 4.26 per cent from tomorrow. This will also be a new best buy.

It’s worth pointing out that this is also reserved for homeowners with the largest amount of equity in their home – those requiring the mortgage to cover no more than 60 per cent of the property’s value. 

Those remortgaging to a two-year fix with large amounts of equity will also have access to a new best buy with Barclays charging 4.6 per cent from tomorrow with a £999 fee. 

What next for mortgage rates? 

Mortgage rates have been drifting downwards in part due to competition between lenders.

But they have also been reducing in recent weeks as a result of money markets, gilt yields and forecasts over the Bank of England cutting interest rates. 

For almost two years, the Bank of England attempted to combat rising inflation by continually upping the base rate.

Since August last year, it has kept the base rate at 5.25 per cent, while inflation slowly returned to its target of 2 per cent. 

Now the central bank is keeping a keen eye on disinflationary factors, such as any uptick in unemployment and stalling economic growth.

Markets expect a late summer or early autumn rate cut and then potentially one more move down this year. 

Heading down again: In recent weeks mortgage lenders have been cutting rates

In terms of what this means for mortgage rates, brokers are confident that deals will only get better in the short run.

Nicholas Mendes added: ‘Although gilt yields and swap rates have dropped over the last few weeks, the fall in mortgage fixed rates has been greater. 

‘This is partly due to strong competition among lenders, but it also suggests that lenders expect gilt yields to continue falling as we approach the first base rate cut of this cycle. 

‘While we saw rates below 4 per cent earlier this year, the situation now is very different from six months ago. 

‘The main difference is that inflation has now reached the Bank’s target level. 

‘Therefore, I expect the downward trend in fixed-rate costs to continue into next year, with further base rate cuts anticipated. A 3.5 per cent five-year fixed rate could be on the cards by early next year.’