Mortgage lenders are set to drop rates in a “mini rate war” over the next few months as they compete for business, brokers have predicted.
Nationwide, the third biggest mortgage lender in the country, dropped rates on several of its fixed deals yesterday, including offering a 2-year fix for just below 5 per cent — at 4.99 per cent.
Experts have said they expect other lenders to follow suit, with rates on 5-year fixes possibly getting below 4.5 per cent in the coming weeks.
Lenders are battling to attract customers amid slow property sales, and a dip in Swap rates – which indicate what the market thinks interest rates will be in future and feed in to mortgage pricing – have allowed them to cut mortgage costs to be competitive.
Andrew Montlake, managing director at Coreco mortgage brokers, said: “Lenders are looking towards next year and are hoping to increase their market share. The reduction in swap rates lowers their costs and means they can afford to be more competitive.
“They are also feeling increasingly confident that we’ve hit the top of the interest rate cycle. I think we are seeing a mini rate war start, which will last the next two to three months.”
Ben Tadd, director of Lucra Mortgages said that Nationwide’s cuts had “blown the rest of the big six lenders out of the water” and that lenders would be “forced to reduce their rates to compete with the market-leading deals Nationwide is offering.”
“This is now likely to lead to a new mini-rate war in the market with lenders competing for business, which will certainly be welcomed with open arms by mortgage borrowers” he added.
A forecast earlier this week suggested that mortgage lending would record the lowest growth in a decade in 2023 and 2024. Santander, the fourth biggest lender in the country, earlier in the month reported that it is lending out £1 billion less per month compared with last year.
Mortgage loans are expected to rise just 1.5 per cent net in 2023 and two per cent net in 2024, which would represent the lowest growth over a two-year period in a decade, according to EY ITEM Club, the forecasting body.
Brokers reacting to the forecast on Monday said that lenders would be forced to drop rates attract business as fewer people seek to take out home loans amid a weakening property market.
The average two-year fix has fallen 6.94 per cent at its peak in June, to 6.22 per cent today, according to the financial analytics firm Moneyfacts.
Nick Mendes of John Charcol brokers said: “There has been a fall in gilt yields over recent days which feeds through to swap rates. Lenders have acted quickly with a flurry of repricing between the high street lenders.
“In view of the above a 4.49 per cent 5-year fixed rate mortgage now looks a strong possibility within the next fortnight.
“A sub 4 per cent fixed rate is a little too early to see coming to fruition this year, but certainly could be sooner than originally expected.”
A deal was launched by Skipton Building Society at 3.35 per cent last month, it came with a hefty 5 per cent fee, which overall could make it more expensive than other deals with higher rates but smaller fees.
On a £250,000 mortgage on a 25-year deal, a rate of 4.49 per cent would mean repayments of £1,388 per month.
At 4.64 per cent, which is the current cheapest 5-year fixed deal available, households will repay £1,410 per month, which is £22 per month more expensive.
Other brokers were less optimistic about the potential for significant falls in rates.
The Bank of England base rate – the rate at which the Bank charges other banks to borrow money – still sits at 5.25 per cent, which is the highest level for 15 years – and most economists don’t expect it start to come down until at least summer next year.
The Bank of England governor Andrew Bailey said this week it was “too early” to talk about cuts to the rate.
And Richard Thompson, director at Abbeydale Mortgages, said: “I do not think there will be a drastic decrease in interest rates until inflation starts decreasing further and the Bank of England starts reducing the base rate.”
Best Buy two-year fix mortgages (source: Moneyfacts)
- Nationwide 4.99 per cent (40 per cent deposit required, £999 fee)
- Nationwide 5.12 per cent (25 per cent deposit, £999 fee
- Yorkshire Building Society 5.34 per cent (25 per cent deposit, £495 fee)
