Banks offer relief for homeowners as mortgage rates slashed

Predictions of ‘price war’ good news for first-time buyers and hard-pressed mortgage holders

Adam Forrest
Thursday 10 August 2023 12:36 BST
Martin Lewis outlines how to determine best fixed-rate mortgage for you

Four of the UK’s top lenders have slashed interest rates on fixed mortgage deals, offering some relief to struggling homeowners.

Experts said the moves by the biggest banks could see others follow suit and spark a price war, despite the Bank of England’s insistence on raising the base rate.

Halifax, Britain’s biggest mortgage lender, announced that it will cut rates on fixed-rate deals by 0.71 per cent from Friday.

It means those facing the current five-year rate of 6.10 per cent will instead be looking at a rate of 5.39 per cent.

“Halifax is making the single largest rate reduction I have seen from a high street lender,” said Jamie Lennox from Dimora Mortgages.

He added: “I expect others to reduce their rates this week, which could start a price war.”

It follows reductions announced earlier this week by Nationwide, HSBC and TSB as banks try to drum up business amid the economic gloom.

Nationwide cut rates on its fixed deals by up to 0.55 per cent this week, while TSB reduced fixed rates by up to 0.4 per cent. HSBC is expected to cut rates by up to 0.35 per cent.

It will come as good news for first-time buyers and those having to remortgage this year, after months of pressure on those struggling to afford rising monthly payments.

Riz Malik, of R3 Mortgages, said: “I expect other major high street lenders to cut rates by the end of the week. This repricing will be beneficial to thousands of households looking to renegotiate their mortgage between now and the end of the year.”

Lewis Shaw, of Shaw Financial Services, also predicted a price war as “transaction volumes drop and mortgage lenders need to get the sharp elbows out to hit their targets”.

The average rates on fixed mortgages have dipped, according to Moneyfacts analysts. The typical two-year deal fell from 6.84 per cent to 6.83 per cent, while the five-year fix fell from 6.35 per cent to 6.34 per cent.

House prices have been falling for several months
House prices have been falling for several months (AP)

Rishi Sunak and his chancellor Jeremy Hunt were given hope this week that the cost of living crisis may be starting to ease, with average pay expected to start rising faster than inflation.

While consumer price index (CPI) inflation is expected to fall from 7.9 per cent to 6.8 per cent when figures are released next week, Capital Economics said wage rises should stand at 7 per cent.

However, the UK economy is still at risk of entering a recession in 2024 amid pressure from high interest rates and increased unemployment, the National Institute of Economic and Social Research (NIESR) has warned.

The think tank said there was still a “60 per cent risk” of a recession by the end of 2024.

Meanwhile, experts warned that rents are expected to continue rising sharply despite the cost of living crisis.

The Independent revealed earlier this week that renters are now spending nearly four times as much of their income on housing as homeowners, in the latest sign of Britain’s worsening housing crisis.

Property professionals’ expectations that rents will rise in the next few months are at the strongest levels seen so far this century, said the Royal Institution of Chartered Surveyors (Rics) on Thursday.

Some 63 per cent of professionals expect rental prices to increase over the three months ahead, marking a fresh record high in records going back to the second quarter of 1999, Rics said.

“Demand shows no signs of letting up, supply remains constrained and that means rents are likely to continue rising sharply despite the cost of living crisis,” said Rics chief economist Simon Rubinsohn.

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