Mortgage rates have continued to tumble, with major lenders like Halifax, HSBC and Barclays cutting deals in recent days.
In fact, HSBC is about to make its third rate cut in just two weeks, when it reduces a range of residential and buy-to-let mortgage deals on Friday (11 July).
Nationwide, Santander and Skipton building society have also reduced some of their rates, leading to brokers speculating that a mortgage price war has broken out.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Get 6 issues free
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The cuts come despite the Bank of England keeping interest rates on hold at its latest meeting.
Last month, the Bank voted to hold interest rates at their current level of 4.25%.
According to Moneyfacts, the average two-year fixed mortgage deal is now priced at 5.05%. Last month (June), the average rate was 5.12%, and a year ago it was about 5.93%.
Five-year deals have fallen from 5.5% a year ago to 5.04% today.
Average two-year fixed deals are now at their lowest point since the start of September 2022, before the disastrous “mini-Budget” was announced under Liz Truss’s leadership.
Nicholas Mendes, mortgage technical manager at the broker John Charcol, comments: “HSBC has announced its third rate cut in just two weeks, and its second within a matter of days, in what looks to be a determined push to regain a leading position in the mortgage market. This latest move follows closely behind recent repricing from Barclays and Halifax, both of whom have trimmed rates across residential and buy-to-let ranges.
He adds: “Falling swap rates and a softening outlook from the Bank of England have created the conditions for lenders to move more aggressively, and HSBC is taking full advantage. We have begun the next price war!”
The fall in mortgage rates comes as the Financial Conduct Authority (FCA) launches a discussion paper on the future of the mortgage market.
The regulator says that first-time buyers, the self-employed and people borrowing into retirement could benefit from changes to mortgage rules.
It notes that the mortgage market has changed considerably over recent years. First-time buyers are older and borrowing for longer. The FCA’s data shows that last year, 68% of first-time buyers borrowed for terms of 30 years or longer.
One option is to bring back interest-only mortgages; the FCA says: “We would like views on whether our rules could better support more interest-only mortgages”. Making equity release products more flexible could also be on the cards.
The regulator will report back later this year or next year about whether any mortgage changes will be implemented.
For now, homeowners and first-time buyers will be pleased to note that mortgage rates are on a downward trend, with the “Trump tariffs” triggering a flurry of cuts from mortgage lenders earlier this year.
Dozens of mortgage deals are now below 4%, including from Nationwide, HSBC, Barclays, Santander and Coventry Building Society.
But will mortgage rates drop lower this year? There are several economic headwinds to be wary of.
Tax rises such as the National Insurance increase for employers, inflationary concerns and GDP figures will all play a part in what happens to swap rates – which influence the price of fixed-rate mortgage deals – and what the central bank decides in terms of changing interest rates.
We take a closer look at the outlook for UK mortgage rates this year.
Which mortgage lenders are cutting rates?
HSBC is gearing up to cut a large number of mortgage deals this Friday, 11 July. This includes first-time buyer, home mover, remortgage, buy-to-let and international deals, and covering loan-to-values (LTVs) from 60% to 95%.
Halifax Intermediaries reduced the mortgage rates on some homemover and first-time buyer fixed-rate products by up to 0.1% today (9 July). It has also cut some remortgage fixed-rate deals by up to 0.15%.
Barclays slashed some of its rates and launched several new mortgage deals today. Highlights include its 5.19% remortgage two-year fixed deal (£999 product fee, 85% LTV) dropping to 4.67%, while a similar five-year deal is falling from 5.07% to 4.62%. The bank now boasts three and five-year fixed deals under 4% for both homebuyers and landlords.
Meanwhile, Nationwide is cutting rates by up to 0.2% across selected two, three and five-year fixed-rate products, effective from tomorrow, 10 July. It’s also launching some switcher rates up to 95% LTV by up to 0.2%, with rates starting from 3.84%.
Skipton Building Society for Intermediaries has cut rates across its entire fixed-rate residential ranges, for new and existing customers.
Last week, The Mortgage Works - the buy-to-let lender owned by Nationwide - trimmed selected rates for new and existing customers by up to 0.35 percentage points, with rates now starting from just 2.79%. For example, its buy-to-let two-year fixed rate (remortgage only) has been lowered by 0.1% to now sit at 2.99%.
In recent months, a large number of other mortgage lenders have cut their rates, including TSB, Santander, Coventry Building Society, Clydesdale Bank, the Co-operative Bank, Bank of Ireland, Metro Bank and Newcastle Building Society. Some have made multiple cuts.
According to the analyst Defaqto, there were 80 fixed-rate mortgage deals with an interest rate of less than 4% available on 25 June. This is a big increase from the 26 mortgage products priced below 4% on 23 April.
In other mortgage news, Nationwide is increasing the maximum LTV for those looking to purchase a new-build house to 95%, and 85% for those buying new-build flats, while offering loans worth up to six times’ income.
The building society said this would help support first-time buyers, housebuilders and the government’s housing ambitions.
What is the forecast for mortgage rates?
In terms of interest rate expectations, most economists are expecting at least one more rate cut this year, possibly in August. Some are forecasting two further cuts this year, or even three.
The Bank’s Monetary Policy Committee will meet four more times this year to set the base rate (August, September, November and December).
Any cuts – or expected cuts – are usually favourable for mortgage rates.
Mendes comments: “Andrew Bailey’s recent comments – suggesting the path for interest rates is now ‘gradually downwards’ – have added to market confidence. With markets fully pricing in a potential base rate cut as early as August, it’s no surprise that lenders are acting fast to secure best buy positions.”
He adds that with multiple big names making successive reductions and competition intensifying by the day, “the battle for best-rate positioning is well and truly underway. It would be no surprise to see further movement from other major lenders in the coming days”.
However, there is no guarantee that the Bank will reduce interest rates - these are merely predictions - and it’s also worth remembering that mortgage lenders consider multiple factors when setting their rates, including their service levels, swap rates and overall market conditions.
According to Sarah Coles, head of personal finance at Hargreaves Lansdown, homeowners and first-time buyers should get used to “uncertainty” in the mortgage market, as some lenders have increased their rates in recent weeks, some have reduced them and others have done a combination of both.
Bear in mind that the mortgage rate is just one aspect of a deal. Borrowers need to watch out for extra mortgage costs as some deals have high fees attached that could offset any savings compared with other deals with higher rates but lower charges.
According to Moneyfacts, the lowest fixed mortgages typically charge upfront fees of around £1,000, or even up to £2,000.
Should you fix your mortgage?
If the last two years of rises and falls have told us anything, it's that predicting falls in mortgage rates is not an exact science. So, if you have one of the estimated 1.6 million fixed mortgage rates that is expiring this year, should you opt for another fixed deal?
David Hollingworth, associate director at the broker L&C Mortgages, says homeowners should start reviewing rates several months before their fix finishes. Locking in a rate now will offer protection against any future increases, and if rates fall before your current fix ends, you can switch onto the lower rate.
However, do double-check the time window for locking in a new deal, as some lenders have reduced theirs to just three or four months.
Fixing your mortgage will provide peace of mind. However, if you're happy to take a gamble, and believe that interest rates will fall over the duration of your next mortgage deal, you could consider a base rate tracker.
Mendes comments: “The key concern for many borrowers is affordability. Those who locked in rates at 1-2% several years ago are now facing remortgage offers of around 4-5%, which could add hundreds of pounds to their monthly repayments.
“Some may choose to fix their rate now for certainty, while others may opt for a variable or tracker mortgage in the hope that rates fall later in the year. There’s also the option of shorter 18 months to two-year fixed deals, allowing borrowers to reassess their options once rates have declined further.”
Katie Brain, banking expert at Defaqto, points out that there is currently only a small gap between two and five-year mortgage rates, so “we could start to see more homeowners taking out longer term fixed mortgages”.
She adds: “When rates increased, many people were reluctant to fix for too long. Now we’re seeing those rates come down, those that want the financial stability of knowing their mortgage payment is fixed for a prolonged length of time may start to reconsider those five-year products or even longer.”
What about variable mortgage rates?
About 1.1 million homeowners are on variable-rate mortgages, which are linked to the Bank of England’s base rate, according to UK Finance. This includes tracker deals and standard variable rates (SVRs).
The average SVR is an eye-watering 7.42%, according to Moneyfacts. The average two-year tracker costs 4.91%.
Those on a high SVR would be wise to switch onto a fixed rate now. Even if fixed rates fall later this year, the money they save from getting rid of their expensive SVR earlier could make it worth it.
Rachel Springall, finance expert at Moneyfacts, says: “It’s essential for borrowers not to delay finding a new deal, particularly if they are sitting on an expensive SVR.
“However, with the lowest rate mortgages grabbing the headlines, it’s vital borrowers seek advice to find the most appropriate package for them, and not just be swayed by the initial rate.”
What about buy-to-let rates?
According to Moneyfacts, the average two-year buy-to-let mortgage rate on 9 July was 4.95%, while the average five-year buy-to-let fix was 5.24%.
These rates seem quite competitive compared to how high they have been over the past few years. Buy-to-let mortgage rates were pushing 7% in the summer of 2023.
Buy-to-let investors also have greater choice, with a record 4,409 buy-to-let mortgage products available.
Landlords will be hoping for a further fall in mortgage rates this year, to help offset the 5% stamp duty surcharge and less generous mortgage interest tax relief.
Mortgage support available
Mortgage rates are much higher than when many people would have last remortgaged. Millions of homeowners will be coming off rates as low as 1% or 2%.
If you’re struggling to make your mortgage repayments, the good news is that lenders representing 90% of the mortgage market have signed up to the government’s mortgage charter. They include the big banks like Halifax, HSBC and Santander and building societies like Nationwide, Leeds and Skipton.
The charter is a series of support measures intended to help those in difficulty. Borrowers will be able to make a temporary change to their mortgage for six months to give them some breathing space, such as switching to interest-only payments or extending their mortgage term to reduce their monthly payments. Customers have the option to revert to their original term within six months by contacting their lender.
About 1.4 million mortgages have benefitted from the mortgage charter since it was introduced in June 2023, according to the City watchdog.
Meanwhile, there is a 12-month delay before repossession proceedings can start against those who have missed payments. Regardless of whether your lender has signed up to the charter, all lenders also have a range of measures in place for customers experiencing difficulties.
Should I overpay my mortgage?
If you’ve got some spare cash and you're on a low rate, overpaying your mortgage can be a good way to protect yourself before your mortgage deal expires and you have to remortgage at a higher rate.
Our mortgage overpayment calculator shows how your monthly repayments will change and help you decide if it is worth it.
Inheritance tax investigations catch out 1200 more families in HMRC crackdown
Bank of England expected to cut interest rates despite sticky inflation
The return of the 95% mortgage – what’s available and how much they cost
Getting a UK mortgage as an expat