HSBC joins British banks in lowering mortgage rates

HSBC has announced cuts to mortgage rates, joining Barclays and NatWest in a move that follows hints from the Bank of England of a possible cut in its base rate in the summer.

Barclays cut fixed-rate home loan costs for new deals on Tuesday, while HSBC’s cuts were due to come into effect on Wednesday. Mortgage brokers expect more lenders to follow suit.

Despite these reductions, the overall impact remains modest. Borrowers still face relatively high costs, with many expecting their monthly repayments to rise significantly once their current, cheaper deals expire.

Mortgage rates have risen, partly due to reduced competition between lenders during the election campaign. According to Moneyfacts, the average rate for a two-year fixed term mortgage is 5.96%, while the average rate for a five-year term is 5.53%.

“These moves suggest that the recent rise in interest rates is now easing and most cuts are being made in small increments,” said David Hollingworth of broker L&C.

The fixed mortgage rate remains unchanged until the deal expires, usually after two or five years, requiring borrowers to select a new rate. If they do nothing, they will fall back to a variable rate, which can be very expensive.

This year, approximately 1.6 million existing borrowers will see their relatively cheap fixed interest rates expire.

While spring typically brings more activity in the housing market, uncertainty about political outcomes may have dampened this trend.

Borrowers are also keeping a close eye on the Bank of England’s Monetary Policy Committee (MPC), which will decide on interest rates at its next meeting on August 1. Recent signals from the MPC suggest that a majority could support a rate cut.

Optimism about this possible outcome may have driven the latest interest rate cuts by major lenders, who are also keen to attract more customers.

“Lenders will be keen to revive a market that is lethargic due to the election, warm weather and football,” said Andrew Montlake of mortgage broker Coreco. “The country is in dire need of austerity to relieve some of the financial pressure that has held back the economy and put borrowers under enormous pressure.”

However, Montlake warned that the recent positive news on falling inflation could be temporary, potentially prompting more cautious action from the Bank.

Michelle Lawson of Lawson Financial noted that while borrowers are “under pressure,” more lenders could cut rates in the coming days.

Furthermore, figures from UK Finance, which represents lenders, show a further fall in the number of people paying just the interest on their home loans, despite the challenging environment for borrowers.