Mortgage brokers are predicting an “all out rate war” after HSBC and Halifax became the latest major lenders to slash prices and inflation fell significantly.
The consumer prices index (CPI) measure of inflation fell to 4.6 per cent on Wednesday, the lowest rate for two years. Although a drop had been expected due to falling energy prices, Swap rates – which determine the pricing of fixed-rate mortgages – have fallen again today on the news.
And brokers have said they expect lenders to continue cutting rates in the coming weeks, with five-year fixed mortgages potentially going to below 4 per cent.
Andrew Montlake of managing director of Coreco, said: “Lenders are now keen to get a good start to the New Year and battle for market share after a lost year of lending and I expect a continuation of their recent competitive moves, with mortgage rates being cut further as they finally move from a light skirmish to an all-out interest rate war.”
Justin Moy of EHF Mortgages said that with Swap rates lower, and “renewed confidence” that inflation with falling “we should see sub 4 per cent five-year deals very soon.”
He said so far most reductions had been for new homeowners and those with existing mortgages, and that those looking to remortgage had not yet benefited from some of the falling rates. People on tracker mortgages are seeing some modest discounts, though standard variable rates – where mortgage prisoners are stuck – are still around the 7 per cent mark having not changed very much.
And Nicholas Mendes of John Charcol brokers said customers could “expect to see sharp reductions before a slow down when lenders and mortgage holders tend to put of making any decision over the Christmas period.”
“Moving into early next year, I do expect to see lenders compete on both rate and criteria,” he added.
Fixed-rate mortgages tend to follow Swap rates, which are lending rates that reflect market expectations of the future direction of the Bank of England base rate.
The Bank of England raises interest rates to combat high inflation, with the logic being that if borrowing is more expensive, people have less disposable income, decreasing demand for goods and services and slowing the rate of price increases.
Although interest rates are still at 5.25 per cent, and most experts don’t expect falls until part-way through next year, inflation falling slightly more quickly than expected – to 4.6 per cent, rather than the 4.8 per cent forecast by the Bank of England – indicates that it is on the right path, and that falls to interest rates will not have to be delayed further.
HSBC also cut its rates by up to 0.16 per cent, and now has a two-year fixed deal at 4.98 per cent. Halifax is also cutting rates by up to 0.46 percentage points, including offering a 4.53 per cent five-year mortgage fix.
Other mortgage brokers also said they expected lenders to respond to the cuts.
Ben Tadd, director at Lucra Mortgages said: “More lenders are now bound to follow suit in a domino effect, with widespread further rate reductions in the coming days to try and keep up.”
The news comes as mortgage lender Perenna opens up a range of new mortgages with long-term fixed rates, that it says will help borrowers who struggle with affordability.
The rates for the mortgages – which can be up to 40 years in term – start at 5.75 per cent, which is far higher than the cheapest on the market.
But the rates are offered long-term for the duration of the mortgage, while most deals are typically for 2 or 5 years.
The lender will also allow people with as little as 5 per cent as a deposit to apply for the mortgages.
