High street lenders in the UK have made substantial reductions in fixed mortgage rates, significantly benefiting homeowners. The trend stems from consistent adjustments in response to the Bank of England’s base rate, which has remained stable at 5.25%. Forecasts suggest further rate reductions in 2024, leading to some of the most competitive mortgage rates since 2023. HSBC, Halifax, Nationwide, and TSB are among the key players offering attractive deals, including HSBC’s five-year fixed remortgage at 3.94%. Halifax has seen noteworthy cuts in two-year fixed rates, plummeting to 4.68% for homeowners with substantial equity. Similarly, Nationwide and TSB introduced reductions of up to 0.55% and 0.4%, respectively. The downward trajectory in rates stems from declining inflation, the base rate’s stability, and banks’ initiatives to counter high mortgage rates, ensuring a competitive market and attracting potential borrowers.
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High street lenders have reduced their two year and Five-year fixed mortgage rates
Lenders have been consistently reducing interest rates on fixed mortgage deals over the past few months. This trend has been supported by the Bank of England maintaining the base rate, which directly impacts homeowner mortgage rates, at 5.25% over the last three occasions.
Analysts in the market anticipate a potential decrease in the base rate during 2024. As a result, we’re witnessing some of the most competitive mortgage rates since the summer of 2023. For instance, high-street lender HSBC recently revealed extensive cuts to mortgage interest rates, joining other major lenders in the UK in announcing reductions of up to one percentage point.
The bank’s latest offerings, announced on Wednesday, include a notable five-year fixed remortgage deal set at 3.94% for borrowers seeking up to 60% of the property value.
HSBC’s two-year fixed rate for remortgages will fall below 4.50% for the first time since early June last year, with the new rate set at 4.49%, applicable for homeowners with at least 40% equity in their property.
Additionally, for those interested in longer-term fixes, HSBC now offers a 10-year fixed-rate deal starting at 3.99%. This move suggests the bank’s confidence that rates will continue to decrease.
Halifax, cut the price of its two-year fixed-rate remortgage from 5.64% to 4.81% on Tuesday.
Halifax has significantly reduced its rates on various fixed-term deals, dropping them by as much as 0.83% for two-year, five-year, and 10-year options. Additionally, the bank cut rates by up to 0.92% for its current customers.
For those with a minimum of 40% equity in their property, Halifax’s most affordable two-year deal now stands at 4.68%, accompanied by a £999 fee. This contrasts with the broader market’s average of 5.93% for two-year fixed deals, as reported by Moneyfacts.
Nationwide building society has implemented rate reductions of up to 0.55 percentage points on its fixed mortgages, effective from lastWednesday. Simultaneously, TSB announced cuts in its new fixed rates of up to 0.4 percentage points, also beginning on Wednesday.
Will Fixed Mortgage rates continue to come down?
Last summer, fixed mortgage rates soared, hitting their peak at 5.96% for two-year deals and 5.28% for five-year deals. However, since then, these rates have gradually declined, currently resting at 4.6% for two-year fixes and 4.28% for five-year fixes, specifically for first-time buyers and those moving homes.
This improvement in rates means that the leading two-year fixed-rate mortgages for home-buyers now result in approximately £80 less per month or £960 less per year for every £100,000 owed compared to the rates observed in the summer of 2023. Similarly, the top five-year fixed-rate mortgages for home-buyers are now around £60 less per month or £720 less per year compared to that same period.
Why the rates are coming down
- Inflation Decline’s Impact: Falling inflation rates in the UK have increased the confidence of financial institutions like banks and building societies. This has led to a willingness to lend money at more affordable rates.
- Lender Response to Base Rate: Lenders adjust the prices of their mortgage products based on potential movements in the Bank of England’s base rate. If the base rate is anticipated to change, mortgage prices are adjusted accordingly.
- Bank of England’s Rate Decision: With the Bank of England’s decision to maintain the base interest rate at 5.25% for the third consecutive time in December, mortgage lenders likely accounted for this possibility in their pricing.
- Impact of High Mortgage Rates: Higher mortgage rates have discouraged people from pursuing mortgages. There has also been an increase in individuals facing difficulties meeting repayment obligations.
- Balancing Market Attraction: Despite falling house prices (though still above pre-pandemic levels on average by £40,000), banks understand the need to attract customers. To achieve this, they are considering cuts to mortgage rates to remain competitive and appealing to potential borrowers.
Options to Remortgage
- Tracker Mortgages and Fixed Rates: Last year, when fixed rates were higher, some borrowers opted for tracker mortgages, which didn’t have an early repayment charge (ERC). This flexibility allowed them to switch to a fixed mortgage, penalty-free, when fixed interest rates potentially decreased.
- Variable Interest on Trackers: Tracker mortgages have a variable interest rate usually tied to the UK base rate, meaning payments can fluctuate. Presently, the best two-year trackers (5.39%) are notably more expensive than the best two-year fixed rates (4.6%). This makes it necessary for fixed rates to decrease significantly to offset the higher tracker rate previously.
- Re-fixing in Advance: It’s possible to secure a new mortgage deal ahead of your current one’s expiry, even if it’s not ending soon. Doing so provides insurance against potential rate hikes and the chance to switch to a cheaper deal if one becomes available before your current rate ends (though check the conditions first). Additionally, fixing offers price certainty.
- Timing and Locking in Early: Typically, you can secure a new mortgage deal up to six months before your current one ends. Detailed information on the advantages and disadvantages of early locking, including the possibility of ditching a locked-in deal without penalties, is available in resources like our ‘Getting ready to remortgage’ guide. This guide provides comprehensive insights into preparing for remortgaging, outlining the potential benefits and drawbacks of early locking-in strategies.