Recent shifts in the UK mortgage market reveal significant reductions in rates as lenders seek to attract customers. With predictions of interest rate cuts, the average two-year fixed mortgage rate has fallen to 4.86%, while the five-year fixed rate now stands at 4.91%. These rates are the lowest seen since October 2022, a time when market volatility was ignited by unfunded tax cuts.
Historic Low Rates Drive Competition
Last week’s mortgage rate adjustments saw over 20 banks reduce their offerings. The Bank of England (BoE) is anticipated to lower the base rate from 4% to 3.75% during its monetary policy committee meeting scheduled for December 18. This marks the fourth base rate cut in a year.
Understanding Swap Rates
- Swap rates, which influence fixed-rate mortgage deals, are at the center of these reductions.
- These rates reflect banks’ outlook on future base rate adjustments.
Adrian Anderson of Anderson Harris commented on the current climate, noting that falling swap rates indicate confidence in upcoming base rate cuts. He elaborated, “There is a price war going on. Lenders are eager to offer competitive rates to attract new business.”
Impact of Rate Reductions
According to Moneyfacts, last week, 24 banks announced mortgage rate cuts, with reductions reaching as much as 0.35 percentage points. Notably, Nationwide dropped some of its rates by up to 0.21 percentage points, marking its lowest two-year fixed rate at 3.58% since September 2022.
Major Banks Making Moves
- Barclays: Rate cuts of up to 0.18 percentage points.
- HSBC: Some rates down by 0.12 percentage points.
- Natwest: A reduction of 0.2 percentage points on select products.
- First Direct: Achieved the largest cut, up to 0.35 percentage points.
Historically, mortgage rates plummeted below 1% as the BoE cut the base rate to 0.1% between March 2020 and November 2021. However, by August 2023, the average five-year fixed rate peaked at 6.85%, while the two-year fixed sought refuge at 6.22%. Following continuous inflation concerns, rates soared after the mini-budget announcement.
Market Trends and Future Expectations
David Hollingworth of L&C Mortgages noted a recent decline in buyer activity, prompting banks to enhance their competitiveness. As lenders refine their pricing strategies to maintain market share, improvements in outlook can translate swiftly to consumer benefits. Notably, the recent budget by Chancellor Rachel Reeves did not further fuel inflationary pressures, leading to a positive market response.
As forecasts signal continued rate reductions, both consumers and lenders remain hopeful for an easing mortgage landscape in the coming months.
