Help for homeowners now that major lenders are lowering mortgage rates

Three major lenders, Barclays, HSBC and TSB, have announced mortgage rate cuts on more than a hundred deals, providing welcome relief to borrowers who have faced rising interest rates in recent weeks.

Barclays will make significant cuts on Friday, reducing fixed rates on purchase and remortgage deals by up to 0.45 percentage points. Notably, the interest rate on one of the five-year fixed deals will drop from 4.77% to 4.32% for borrowers who refinance with a 40% down payment.

HSBC has announced plans to cut interest rates on more than 100 of its fixed deals over two, five and 10 years, aimed at both homeowners and landlords.

With TSB also announcing cuts on some of its two- and five-year deals, cutting rates by up to 0.1 percentage points.

Brokers expect these rate cuts will prompt other lenders to follow suit. Hina Bhudia of Knight Frank Finance commented: “HSBC already had many of the cheapest deals on the high street, so this is quite a statement of intent. We’ll have to wait and see, but I would be surprised if more lenders don’t cut interest rates in response.”

These cuts come after a period of rising mortgage rates, driven by delayed expectations of a rate cut by the Bank of England due to persistent inflation and rising swap rates, which banks use to price fixed loans.

Last week the Bank of England kept borrowing costs at a 16-year high of 5.25%, but indicated a rate cut could come as soon as next month if inflation continues to fall. This, combined with a recent drop in swap rates – with two-year swaps falling from 4.57% to 4.46% and five-year swaps from 4.02% to 3.9% – has buoyed lenders.

Mark Harris of mortgage broker SPF Private Clients said: “This wave of rate cuts by some of the major lenders is great news for borrowers. Lenders tend to follow the herd when it comes to mortgage prices, so these cuts should give others the confidence to cut their own rates, boosting market activity and confidence.”

Currently, the average two-year fixed rate is 5.92% and the average five-year deal is 5.49%, according to analyst Moneyfacts. These averages include deals for borrowers with unfavorable credit ratings and small deposits, which typically carry higher interest rates.

About 800,000 households are expected to switch from a fixed rate to a higher rate between now and November, according to analysis by the Liberal Democrats and the House of Commons library. Nicholas Mendes of broker John Charcol highlighted the “significant potential” for further rate cuts in the next two weeks.

He added: “Financial markets have adjusted their forecasts, signaling a potential end to the recent trend of lenders raising rates. For those who have recently applied for a mortgage, there is the option to switch to a lower rate due to changed market conditions. This can result in significant savings over the life of your mortgage.”

This series of rate cuts by major lenders provides a much-needed breather for homeowners and is expected to boost market activity and confidence in the coming weeks.