Recent shifts in the UK mortgage market have seen rates decline significantly, marking the lowest levels witnessed since October 2022. This drop coincides with anticipated cuts to the Bank of England’s base rate, pushing lenders to offer competitive rates to attract customers.
Current Mortgage Rates
- Average two-year fixed rate: 4.86%
- Average five-year fixed rate: 4.85%
- Lowest five-year fixed rate since May 2023
According to Moneyfacts, more than 20 banks adjusted their mortgage rates downwards last week. The Bank of England is projected to lower the base rate from 4% to 3.75% during its upcoming monetary policy committee meeting scheduled for December 18.
Factors Influencing Mortgage Rates
The fall in rates is attributed to a combination of declining swap rates and market speculation about future base rate cuts. Swap rates are crucial as they determine fixed-rate mortgage pricing, and their reduction indicates a strong expectation for forthcoming base rate decreases.
Adrian Anderson, a mortgage broker at Anderson Harris, pointed out that the ongoing price war among banks has intensified over recent months. This competition is driven by lenders’ desire to increase their market share.
Recent Rate Changes by Key Banks
- First Direct: Cut rates by up to 0.35 percentage points.
- Nationwide: Reduced some rates by up to 0.21 percentage points; lowest two-year fixed rate at 3.58%.
- Barclays: Adjusted rates downwards by 0.18 percentage points.
- HSBC: Rate reductions of up to 0.12 percentage points.
- Natwest: Some rates fell by 0.2 percentage points.
Last week, 24 banks initiated rate cuts, a noticeable increase compared to previous weeks. Rachel Springall from Moneyfacts noted that nearly twice as many lenders have modified their rates, aligning with the declining swap rates and expectations of base rate reductions.
Market Conditions and Expectations
The UK housing market had encountered a period of notable cooling prior to the latest budget announcements. Many banks are now responding to decreased buyer activity by offering more appealing mortgage rates in a bid for market share.
David Hollingworth from L&C Mortgages emphasized the competitive nature among lenders, stating that reduced buyer activity has led to smaller margins and quicker pass-through of improvements in the market outlook to consumers.
As the situation evolves, potential homebuyers can anticipate continued competitive mortgage rates as lenders adjust to changing market dynamics and seek to capitalize on the expected reductions in interest rates.
