Mortgages slashed as banks lower rates

LENDERS have kicked off a new year “mortgage rates war” amid hopes the Bank of England will cut borrowing costs.

One of Britain’s biggest providers, Halifax, cut the rates on some of its mortgages by as much as 0.92 percentage points yesterday, equivalent to £162 a month on a £300,000 loan with 25 years of repayments left.

Leeds Building Society also cut rates by 0.49 percentage points and is now offering a two-year fix at 4.6 per cent, according to analyst Moneyfacts.

Other lenders, such as Kensington, have withdrawn rates with plans to re-launch cheaper loans.

The Bank of England is expected to hold the Bank Rate at 5.25 per cent in its meeting next month, but markets are betting on a reduction in May.

Ranald Mitchell, a mortgage broker from Charwin Private Clients, said the “unprecedented rate war is well under way” and that “seismic moves” were to be expected compared with 2023. He added: “With net mortgage lending predicted to be lower than last year, lenders will be pulling out all the stops – not just to acquire new business, but also to protect their existing customers.

“Such vying for business, as well as new-build initiatives being rolled out and pent-up frustration from an inert purchase market last year, could mean lending forecasts are well off the mark.”

A buyer taking out a two-year fix in June 2021 paid an average mortgage rate of 2.59 per cent, but this has since more than doubled to 5.93 per cent, according to Moneyfacts.

This year, more than 1.5 million homeowners will reach the end of fixed-rate mortgage deals. While recent falls in rates will likely come as welcome news, borrowers still face having to fork out more each month. Gross mortgage lending across the UK fell

by 28 per cent last year, and is set to fall by a further 5 per cent this year according to UK Finance. James Tatch, head of analytics at the banking trade body, said he also only expects a “modest increase” in lending activity come 2025.

Labour blames the Conservatives for high interest rates, which soared in the wake of Liz Truss’s disastrous minibudget. The party said the former prime minister’s tax cuts spooked the markets and caused a “Tory mortgage penalty” costing homeowners an extra £150 a week on average.

But the Tories say that their success in halving inflation in 2023 means they should take the credit for any reductions in mortgage rates.

Generation Home – a small fintech lender – is offering the best five-year deal, at just under 4 per cent. Peter Stokes, of brokerage Davidson Deem, said smaller lenders typically offered the best deals.

He added: “This is down to the big players postponing rate reductions before Christmas, knowing they would be working with a skeleton staff and many brokers would be shut down for the holidays ... now we are all back, I fully expect the big hitters to start lowering their rates to reflect the reduced cost of funds. Maybe we will even see the elusive three-point-something, fiveyear fixed rate in the coming days.”

Andrew Godwin, of Oxford Economics, said someone refinancing a twoyear fix now will probably still be offered a rate around 2.50 percentage points higher than their expiring deal.

Anil Mistry, of brokerage RNR Mortgage Solutions, said an anticipated rate reduction in May could spark “a cascade of mortgage rate decreases” timed for borrowers nearing the end of their deals.

Darryl Dhoffer, of brokerage the Mortgage Expert, said until this decision in May it was likely that only mortgages requiring big deposits would be cut.

He added: “The biggest reductions will be on retention products [i.e product transfers].

“Long-term, if inflation continues to fall this does put pressure on the Bank of England to cut rates sooner than maybe forecasted. In this game of rates, nothing is certain except the uncertainty.”

‘I expect the big hitters to start lowering their rates ... maybe we will even see a three-point-something’