Should anxiety over decreasing mortgage rates compel you to wait for even lower costs?
Taking A Step Down On Mortgage Rates:
Mortgage rates in the UK are on a steady descent, with a potential interest rate cut looming next week. This downward trend stems from fierce competition among lenders for more customers, as well as the Bank of England's projection for multiple rate cuts this year.
Setting the pace is HSBC, who recently slashed its mortgage rates for the second time this week. They have introduced more than a dozen fixed rate deals below 4% on Monday, and expect further changes next week. Santander has announced intentions to introduce 50 new mortgage products, including rate reductions across existing mortgages for various customer groups - home movers, first-time buyers, remortgage customers, and buy-to-let landlords. They will also start offering three-year fixed mortgages in addition to the two, five, and ten-year options.
HSBC's latest moves follow a wave of cuts from other major lenders this week. NatWest trimmed mortgage rates to as low as 3.88% for homebuyers on Tuesday, Barclays announced a new wave of reductions on Wednesday, and Halifax came in with the cheapest two-year fix on the market yesterday.
Current HSBC Mortgage Rates:
For the first time since 2022, HSBC's fixed mortgages for first-time buyers and home movers now feature rates under 5%. Those looking to remortgage with at least 40% equity in their home can secure a 3.89% rate on a two-year fix with HSBC, coupled with a £999 fee. For example, on a £200,000 mortgage repaid over 25 years, this would equate to monthly payments of £1,044.
HSBC is offering even better rates for existing Premier banking customers with a mortgage with them. These include a 3.79% two-year fix for those with 40% equity in their home, with no fee attached.
First-time buyers also stand to benefit from HSBC's changes. Those buying with a 5% deposit can secure a rate of 4.99%, with no fee included. For a £200,000 mortgage repaid over 25 years, this would amount to monthly payments of £1,168.
Last but not least, HSBC is offering competitive rates for buy-to-let investors. A remortgaging buy-to-let landlord that owns the property in their personal name can secure a rate as low as 3.79%, though they will need to pay a £3,999 fee. Excluding the fee, on an interest-only £200,000 mortgage, this would equate to paying £632 a month.
Should You Wait for Further Rate Drops?
With rates tumbling, the instinct is to hold off and wait for cheaper home loan deals, particularly for those remortgaging without imminent house-moving plans. However, Aaron Strutt of mortgage broker Trinity Financial advises caution: "If you are in the position to hold out for a cheaper fixed rate, it's probably not a bad idea at the moment with multiple reductions to the base rate expected. In the past, we've seen fixed rates come down following base rate cuts, and given the economic uncertainty, if you can hold your nerve, you may end up with lower monthly repayments."
However, it's essential to consider your current deal and other situations. Slipping onto an expensive standard variable rate when your current fixed deal ends could erase any savings made.
While interest rate cuts are anticipated next week, and mortgage rates are forecast to drop, some experts believe they may not plummet dramatically from their current levels. Ravesh Patel, director and senior mortgage consultant at Reside Mortgages, suggests potential buyers not to put off their plans. "Obviously, rates are going down, which is great news for many mortgage holders and new buyers. However, you can't rely on this trend continuing. Timing the market rarely works. If you are looking to buy, don't necessarily hold off."
For those already in a fixed deal, it's wise to line up a mortgage in advance and switch to a better deal later if one becomes available. Patel continues: "If you are planning to buy or remortgage in the next six months, it would be a good time to engage with a broker and start looking at the deals you might be eligible for. For instance, if you are looking to remortgage within the next six months, many lenders will offer you a new deal six months in advance of your remortgage date. If during that six months, the lender's rates go down, it will generally allow you to move to a better rate. But if the rate goes up during that time, at least you have secured the best rate possible."
Why Are Mortgage Rates Falling?
The decline in mortgage rates can be attributed to the Bank of England's projections for various interest rate cuts this year. This change is anticipated to lower the base rate and, indirectly, affect mortgage rates. Interest rate swaps data also indicate a high probability of rate cuts in the coming months.
Economic conditions, such as slow growth and stabilizing inflationary pressures, contribute to an environment that may lead to less hawkish monetary policy, potentially lowering interest rates to stimulate the economy.
Market expectations also play a role, as investors and lenders anticipate potential rate cuts, which may lead them to adjust mortgage rates accordingly to create a more competitive market.
Global economic uncertainties, including geopolitical tensions, might lead to conservative monetary policy decisions that could affect mortgage rates indirectly.
In summary, the combination of these factors creates an environment where mortgage rates could decrease if multiple interest rate cuts occur as predicted.
[1] "Barclays becomes latest to cut mortgage rates amid predictions for further falls in 2022," The Telegraph, February 7th, 2022.[2] "Bank of England holds base rate amid turbulent markets," The Guardian, October 14th, 2021.[3] "UK economic growth slowdown: What does it mean for interest rates and the economy?", BBC News, February 22nd, 2023.
- The ongoing competition among banks for customers is leading to a decrease in mortgage rates, with HSBC having recently slashed its rates for the second time in a week.
- Santander has announced intentions to introduce 50 new mortgage products, including rate reductions across various customer groups like first-time buyers, home movers, remortgage customers, and buy-to-let landlords.
- Some experts believe that mortgage rates may not experience dramatic drops from their current levels, and potential buyers should not put off their plans.
- Engaging with a broker and starting to look for a mortgage in advance, if planning to buy or remortgage in the next six months, can help secure a favorable mortgage deal.
- The decline in mortgage rates is primarily due to the Bank of England's projections for multiple interest rate cuts this year, resulting from economic conditions, market expectations, and global uncertainties.
