A two-year mortgage fix below 5 per cent has appeared on the market for the first time since June.
Nationwide has slashed rates across its fixed mortgage range today, in the latest indication that lenders are cutting rates in order to attract business in a slowing property market.
The building society has become the first major lender to offer a two-year fix below 5 per cent since June – offering a rate of 4.99 per cent for those with larger deposits or equity.
Overall, it has decreased rates across its two, three and five-year fixed rate product range, with its lowest rate now standing at 4.64 per cent.
It comes after news this week that mortgage lending is set to record decade-low growth over this year and next.
High borrowing costs and lower property sales are slowing demand for home loans according to the business and tax consultancy Ernst & Young, which is leading to bigger lenders to cut rates to attract business.
Santander, the fourth biggest lender in the UK, reported earlier in the month that it was lending out over £1 billion less a month than it had been last year.
Brokers have suggested that other lenders will have to follow suit and decrease their rates to below 5 per cent in order to compete for business.
A survey published by the Royal Institute of Chartered Surveyors (Rics) today indicated that numbers of would-be buyers are down, as are agreed sales, while property prices are still falling and estate agents are not optimistic that the housing market will pick up any time soon.
For the fifth month in a row, the consensus among estate agents and surveyors in the Rics survey was that the number of new homes coming to the market fell again in October.
Reacting to today’s news, Aaron Strutt of Trinity Financial said: “For the first time in a while it feels like there is competition between the lenders to offer the cheapest rates. Banks and building societies know they need to offer decent and affordability mortgages to attract borrowers.”
And Nick Mendes, mortgage technical manager at John Charcol Brokers, said: “It’s been a while since we’ve last seen a two-year fixed coupled with a rate that starts with 4.
“There has been a fall in gilt yield over recent days which feeds through to swap rates. Lenders have acted quickly with a flurry of repricing between the high street lenders.
“The two-year benchmark gilt yield has seen steady falls, which suggests the market is taking a rather more positive view of when and how quickly the bank rate will fall than would be suggested by Andrew Bailey.”
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, and several other banks including Halifax and NatWest have cut mortgage rates in recent days.
And the falls in mortgage rates come despite fears that the Bank of England’s base rate – the rate at which it charges other banks to borrow from it – may stay at its current level for a year or more.
The Bank of England’s chief economist Huw Pill suggested this week that rate cuts may come in the middle of next year, but the Bank’s governor Andrew Bailey followed this up yesterday by saying it was “too early” to talk about interest rate cuts.
