A new mortgage war is looming in favour of would-be home buyers, with a rise in mortgage deals below 4% following the Bank of England’s decision to cut interest rates.
According to Uswitch data, the average interest rate on a two-year fixed deal this week was 5.89%, unchanged from last week, while the rate on a five-year deal was 5.31%, up from 5.20% last time.
The Bank of England cut interest rates to 5% at its August Monetary Policy Committee (MPC) meeting, the first cut in the UK’s base interest rate in four years.
In a delicately balanced decision, five members voted in favor of lowering rates, while four wanted to keep rates unchanged.
The market is expecting two more rate cuts by the end of the year, which could see mortgage rates fall to as low as 3.5% by the end of the year.
Nationwide has launched a new five-year fixed rate loan offer of 3.78% for new and existing customers looking to move, but borrowers must take out a minimum loan of £300,000 to qualify.
TSB has cut two-, three- and five-year deals by 0.25 percentage points for both existing homeowners and first-time buyers, while Barclays has cut its two-year fixed-rate deal for borrowers with a 15% down payment by 0.15 percentage points, taking the rate to 5.07%.
HSBC also cut interest rates on its two-, three- and five-year fixed rate products with deposits from 10 percent to 40 percent, while Virgin Money (VMUK.L) cut buy-to-let mortgage rates by 0.15 percentage points.
Stephen Perkins, managing director of broker Yellow Brick Mortgages, said: “Further rate cuts from two of the biggest players in the mortgage market send a clear and strong message to borrowers. Lenders are hungry for business for the remainder of 2024 and borrowers need to take note. With increased competition between lenders, now is the perfect time for borrowers to make their property dreams a reality.”
HSBC Home Loan Rates
HSBC’s (HSBA.L) five-year interest rate is 3.84 percent, down from 3.95 percent last week, and for holders of the bank’s Premier Standard account the rate drops to 3.81 percent.
Looking at the two-year option, the minimum interest rate is 4.24% with a fee of £999, down from 4.41% last week.
Both cases assume a mortgage with a 60% loan-to-value ratio (LTV), meaning buyers will need to come up with at least 40% down payment.
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HSBC offers a 95% LTV deal, meaning you only need to save up a 5% down payment, but the interest rates are much higher, with a two-year fixed rate of 5.84% and a five-year fixed rate of 5.29%.
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This is because the interest rate one can get depends on one’s financial situation and the size of the down payment: the more down payment a buyer can make, the lower the LTV will be and the better the loan terms will be, as lenders will view them as a lower risk.
“The key aspect of HSBC’s proposal is the combination of low interest rates and manageable fees which makes this deal very attractive,” said Nick Mendes of John Charcol Brokers.
Natwest mortgage rates
NatWest (NWG.L) also crossed the sub-4% trading threshold, offering 3.83% on a five-year deal with fees of £1,495, unchanged from last week.
The minimum loan amount is £250,000 and early repayment charges (ERC) start at 4.5% in the first year, dropping to 4.25%, then 4%, 2.5% and finally 1%.
For a two-year fixed rate, the cheapest deal is 4.21%, the same as last week.
In either case, you’ll need at least a 40% down payment to qualify for the interest rate.
Santander mortgage rates
Santander (BNC.L) is offering a five-year fixed rate of 4.41% with fees of £999, while the down payment remains unchanged at 40%.
On a two-year contract, the cheapest interest rate customers can get is 4.08%, with the fee also remaining at £999, which is also unchanged from last week.
Barclays mortgage rates
Barclays (BARC.L) left its deals unchanged this week after joining the sub-4% club last week. Its cheapest five-year deal for homebuyers with a 40% down payment (60% LTV) is 3.84%.
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For a two-year mortgage agreement, the minimum interest rate is 4.22%.
Nationwide mortgage interest rates
Nationwide (NBS.L) has further slashed its sub-4% offer, now offering a five-year fixed rate at 3.78%. The deal incurs a £1,499 fee and requires a 40% down payment, and is only available on loans over £300,000.
Nationwide is offering a two-year fixed rate of 4.53% on home purchases, plus a fee of £999, also for borrowers with a 40% deposit – this is down from 4.65% last week.
Other transactions include:
New moving customers
5 year fixed rate, LTV 60%, fee £1,499, 3.83% (down 0.16%)
5 year fixed rate, LTV 60%, fee £999, 3.88% (down 0.16%)
5 year fixed rate, LTV 85%, fee £999, 4.37% (down 0.13%)
2 year fixed rate, LTV 60%, fee £999: 4.35% (down 0.11%)
Relocation of existing customers
Five-year fixed rate, LTV 60%, fee £1,499, 3.83% (down 0.16%)
5 year fixed rate, LTV 60%, fee £999, 3.88% (down 0.16%)
5 year fixed rate, LTV 85%, fee £999, 4.37% (down 0.13%)
2 year fixed rate, LTV 60%, fee £999, 4.35% (down 0.11%)
First time buyer
5 year fixed rate, LTV 60%, fee £999, 4.19% (down 0.20%)
5 year fixed rate, LTV 85%, fee £999, 4.46% (down 0.09%)
2 year fixed rate, LTV 85%, fee of £999 is 4.90% (0.05% reduction)
Refinancing your mortgage
5-year fixed rate, LTV 60%, fee of £999: 4.20% (down 0.12%)
The 5-year fixed rate with no fees and a LTV of 75% is 4.50% (down 0.18%)
For a two-year fixed rate, LTV of 60%, and fee of £999, the rate is 4.57% (down 0.13%).
Halifax mortgage rates
Halifax, the UK’s largest mortgage lender, is offering a two-year fixed rate of 4.36 per cent and charging first-time buyers the same fee of £999 as last week.
The Lloyds (LLOY.L)-owned lender set the five-year rate at 3.99% (LTV at 60%), also unchanged from last week.
The company is also offering a 10-year deal with a mortgage rate of 4.93%, unchanged from last week’s offer.
The cheapest mortgage on the market
With mortgages below 4 percent back on the market, prospective homebuyers are beginning to have more options to find a good deal.
Currently, Nationwide offers the cheapest plan on the market, but its 3.78% plan requires a 40% down payment, so you’ll need to put down a lot of cash up front to secure your plan. NatWest follows closely, offering a five-year fixed 3.83% plan, followed by HSBC’s 3.% plan.
Read more: Which scheme is best for first-time home buyers?
Given that the average house price in the UK is £291,268, a 40% down payment equates to around £116,500.
Banks say borrowers would have to spread their mortgage payments over 70 years to get the same mortgages that were available just two years ago.
There are also new mortgage products promising to enable first-time home buyers to purchase a home with a deposit of just £5,000: Yorkshire Building Society is offering a plan that allows first-time home buyers across England, Scotland and Wales to buy properties worth up to £500,000 with a deposit of £5,000.
This means that first-time homebuyers can purchase a home with a down payment of just 1%.
Additionally, lender APRIL Mortgages is currently offering buyers the opportunity to borrow up to six times their income on a five- to 15-year fixed-term loan with a 5% down payment. Both solo buyers and those buying with others can apply for this mortgage.
The company, which is part of independent Dutch asset manager DMFCO, offers interest rates starting from 4.99% and has an application fee of £195.
Skipton Building Society has also announced that it will allow first-time home buyers to borrow up to 5.5 times their income in a bid to help more borrowers get onto the home-buying ladder.
Will mortgage rates fall in 2024?
Mortgage holders and borrowers have been forced to make record high repayments in recent years as UK banks and building societies passed on base rate hikes to customers. Until now, the consensus was that interest rates had peaked and would be cut in 2024 as inflation eases.
But despite inflation falling to target, traders are now pricing in just two rate cuts, compared with expectations of five cuts at the start of 2024.
Matt Smith, mortgage expert at Rightmove, said: “The long-awaited rate cuts have finally arrived and while anyone looking to get a mortgage in the near future shouldn’t expect to see a huge drop in mortgage rates, we expect the downward trend we’ve started to see to continue.”
“This will hopefully lead to further rate cuts down the road, and people will start to feel the impact once the base rate is cut further. However, it is important to note that mortgage rates are widely expected to eventually settle at higher levels than before, with the market expecting the base rate to eventually fall to around 3.25%.”
About 1.6 million existing borrowers have relatively cheap fixed-rate contracts expiring this year.
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