British lenders have been slashing mortgage rates in response to increasing competition, a slowdown in inflation, and expectations of future interest rate cuts by the Bank of England (BoE). Data from Moneyfacts reveals that average rates on fixed-rate mortgage products have dropped by over 0.5 percentage points since reaching a peak in July. This reduction has occurred even before the BoE has begun to lower the benchmark rate that determines borrowing costs.
The latest inflation figures released on Wednesday showed a sharper-than-expected decline in price rises in the UK during October. Inflation dropped to 4.6% from 6.7% the previous month, prompting investors to increase their bets on BoE rate cuts in 2023.
HSBC is the latest lender to cut rates, announcing an average reduction of 0.15 percentage points across its products. Other lenders, including Halifax, Virgin Money, and Nationwide, have also made similar moves in recent days.
Mortgage brokers have noted a series of rate reductions by lenders in recent weeks to align with the overall shift in market-pricing on future rates. A spokesperson for broker John Charcol explained that lenders are trying to catch up with the change in market conditions.
Moneyfacts data reveals that the average two-year fixed-rate mortgage is currently priced at 6.19%, down from its peak of 6.86% on July 26. The average five-year rate stands at 5.79%, having fallen from 6.37% on August 2.
Some bank mortgage teams are also increasing their efforts late in the year to meet year-end targets after a challenging period for the wider market. However, the housing market in the UK remains tough, and the country’s inflation rate remains high compared to most other developed economies.
Separate data released on Wednesday showed that UK house prices fell in annual terms in September for the first time since 2012, highlighting the current weakness in the property market.
While the reductions in fixed mortgage rates will offer some relief to borrowers seeking new mortgage deals, it is unlikely that variable rates, which closely track the BoE rate, will see similar cuts.
As the housing market faces ongoing challenges, lenders are attempting to adapt to changing market conditions by making mortgage rates more competitive. However, the uncertain economic climate and high inflation rates continue to pose difficulties for the property market.