Seven mortgage lenders are cutting rates as lenders battle it out for market share.
Most notably, Barclays has today cut the cost of its home loan deals across its fixed rate products aimed at home movers and first-time buyers.
Among the changes, the high street bank is now offering two deals charging just 3.99 per cent, echoing Santander’s cuts announced earlier this week.
Like Santander, these deals are reserved for those buying with the biggest deposits – ie 40 per cent of the property price.
However, unlike Santander, to be eligible for Barclays’ top deals home buyers will either need to be a Premier Banking customer or they will need to be buying an energy efficient home.
Barclays’ lowest five-year green mortgage rate of 3.99 per cent is available for homes with an energy performance certificate (EPC) of A or B.
The deal comes with a £899 fee – significantly lower than Santader’s chunky £1,999 fee.
For anyone who isn’t either a Premier banking customer or buying a ‘green home’ the best five-year fix available with Barclays is 4.09 per cent. with a £899 fee.
On a £200,000 mortgage being repaid over 25 years, that would equate to someone paying £1,066 a month.
For those preferring to fix for shorter, Barclays is offering rates starting from 4.22 per cent, with an £899 fee for those with at least a 40 per cent deposit.
Alongside Barclays, Nationwide Building Society, Yorkshire Building Society, TSB, BM Solutions, Coventry Building Society and Leeds Building Society have all announced rate cuts.
Yorkshire Building Society’s changes are likely to make the biggest difference to borrowers.
The mutual has cut rates for the second time in a week and is now offering some of the best deals on the market.
Its lowest five-year fix is 4.1 per cent with a £995 fee, while its lowest two-year fix is 4.23 per cent. These are both available to households remortgaging with at least 40 per cent equity in their home.
For those buying or remortgaging with a 25 per cent deposit or equity, Yorkshire BS is offering a 4.26 per cent rate.
It is offering the lowest rate on the market for those buying with a 20 per cent or 15 per cent deposit at 4.3 per cent and 4.31 per cent respectively – both with a £995 fee.
On a £200,000 mortgage being repaid over 25 years, a 4.3 per cent rate would equate to £1,090 a month.
Another building society to make sizeable cuts is Leeds Building Society. It is lowering rates by up to 0.74 percentage points with households and buy-to-let landlords set to benefit.
TSB has also cut some of its rates by up to 0.15 percentage points.
The bank has made itself most competitive in the three year-fixed rate space offering a market leading 4.53 per cent for those buying with a 20 per cent deposit, albeit with a £1,495 fee. There is also a 4.55 per cent option for those buying with a 15 per cent deposit.
Meanwhile, BM Solutions, part of Lloyds Banking Group, has reduced rates across its buy-to-let products.
Nationwide is cutting selected remortgage rates by up to 0.35 percentage points and selected switcher rates by up to 0.13 percentage points. These come with either a £1,499 fee or £999.
Will mortgage rates keep going lower?
The large levels of activity across the mortgage market will be catching the attention of both households approaching their remortgage date and home buyers preparing to purchase.
With so many big names cutting mortgage rates and the Bank of England having lowered interest rates last week, many will be anticipating that the cuts will keep coming.
However, some brokers are urging caution to those who may be tempted to hold off and wait for lower rates.
This is largely to do with the fact that rates of below 4 per cent are not profitable for lenders, unless they have a hefty fee attached.
This fact will not change unless sonia swap rates – bank lending rates which influence the pricing of fixed-rate mortgages – fall further from where they are currently.
As of 11 February, five year swaps were at 3.86 per cent and two-year swaps were at 3.97 per cent. It is very rare for the lowest two-year or five-year fixed rate mortgages to go below the equivalent swaps.
Chris Sykes, technical director at mortgage broker Private Finance said: ‘The first sub-4 per cent five-year fixed mortgage rate have re-entered the mortgage market since November.
‘This is fantastic news for borrowers for those that are eligible. However, as the margins against the cost of funds remain extremely tight, we don’t anticipate this to be copied by many other lenders.
‘These products often also come with enhanced fees to compensate for the rate. It’s been fairly common for major lenders to introduce a headline rate like this to generate attention and to be honest it has worked, I’ve already have clients asking about it.
‘However, we typically find that these products are loss-making and short lived or only for a very select subset of the market.
‘That said, in a push to attract early market share this year, it could be a good move as other lenders sit still, hesitant to act just yet while the market continues to change.’
Could swap rates fall further?
It’s possible. Sonia swaps have been falling following the increase sparked from higher gilt yields at the start of the year.
Comparing two- and five-year swaps today to the same time last month, rates have roughly dropped by 0.35 percentage points.
Sykes believes that falling swaps pose a risk to lender profits.
‘This downward shift forces lenders to navigate rate pricing strategies carefully,’ added Sykes.
‘At the start of the year when swaps were higher, lenders were issuing loans while hedging against a higher cost of funds.
‘Now, they face the challenge of adjusting prices to remain competitive and attract new business – while also retaining existing borrowers who secured higher rates just weeks ago and may seek to switch if lower rates are introduced.
‘Lenders must weigh the profits from new loans against potential losses on loans written in the past six months, as borrowers could look to adjust to better rates before completion on their mortgage.
‘Rate uncertainty is costing borrowers, as lenders take time to adjust pricing. On a positive note, the Bank of England has provided clear guidance on their decision and cautious attitude, which we hope will bring greater stability to mortgage rates in the coming months.’
