UK’s mortgage rate falls amid market competition

The average percentage on a two-year fixed mortgage has tumbled to its lowest level for about seven months as lenders compete for custom.

Rate Reductions and Market Dynamics

Financial information service Moneyfacts reported a swift decline in average mortgage rates from 5.92% to 5.87% within a day. 

Major lenders like Halifax and HSBC initiated rate cuts at the year’s onset, aiming to retain customers as their funding costs decreased. Anticipated further reductions are on the horizon, yet many homeowners are grappling with increasing bills.

Challenges for Existing Borrowers

As the mortgage market intensifies, existing borrowers—approximately 1.6 million with expiring cheap fixed-rate deals this year—face impending challenges. 

The transition to a new product could result in substantial interest payment hikes, albeit a better outcome than anticipated.

Shifts in Mortgage Rates

The landscape of mortgage rates remains different from previous years due to significant changes. 

Fixed-rate mortgage terms typically span two or five years, with the interest rate locked until the deal ends. Staying on a variable rate post-expiry could be costly, averaging over 8%.

Lender Initiatives and Impact

Halifax, among others like TSB, First Direct, and NatWest, commenced the year by slashing rates on selected mortgage products. This move triggered a drop in average rates, according to Moneyfacts. 

The market’s resurgence after the holiday season has intensified competition, leading to substantial rate cuts of around one percentage point from their peak.

Observations from Industry Leaders

Richard Fearon, Chief Executive at Leeds Building Society, highlighted the visible mortgage price war, marking a competitive resurgence in the market. 

Rates have descended significantly, attributed to the competitive landscape and a market comeback post-Christmas slowdown. Both two-year and five-year fixed-rate averages are presently at their lowest since June.