Barclays, Halifax and Nationwide cut mortgage rates as sub-5% deals available again

Multiple banks have cut their mortgage rates in the past two days, with deals available below 5 per cent for some buyers – despite rates hitting their highest levels in nearly three years this autumn. As oil prices remain high, due to the conflict in the Middle East, so have expectations that inflation and interest rates will rise in the next year, with the Bank of England predicted to increase the base rate from 3.75 per cent to 4 per cent this Thursday (5 November). However, several lenders have cut prices for their mortgage deals this week. Halifax – Britain’s biggest lender – reduced its rates by 0.22 percentage points on Tuesday (3 November) while Barclays dropped its rates by 0.3 percentage points. Nationwide will apply a cut of up to 0.15 percentage points on Wednesday morning. This is likely to put pressure on other lenders to reduce their rates too. Multiple banks now have deals available at under 5 per cent, although customers need to possess a large deposit or equity in their home to access these. They are only available to those with 60 per cent loan-to-value (LTV) – which means you have paid off 40 per cent of your home’s value at a minimum. At 75 per cent LTV and above – meaning you own a quarter of your home outright – no mainstream lender is yet offering a rate below 5 per cent. Why are rates dropping? Fixed-rate mortgages – which most households in the UK have – give you an agreed interest rate for a set period of time. When your fix comes to an end, you then have to agree a new one.The price of these mortgages is primarily driven by swap rates – the rates banks use to lend to one another – which go up or down depending on long-term forecasts for what the Bank of England will do to interest rates. If traders start to expect more interest rate rises than previously, swaps go up. If the converse happens, rates go down. This summer, expectations for inflation have increased dramatically, and more Bank of England interest rate rises are expected as a result. Mortgage rates have risen from an average of around 5.5 per cent in July, to 6 per cent now. Mortgage rates are now going down, due to a combination of factors. Experts say the first is that banks are trying to entice customers, and the second is that swap rates have now levelled out. Previously, banks were building a large margin above current swap rates, as they expected these to rise in future. Now they are able to drop their mortgage rates a little because swap rates have not continued to rise at the same pace. Nick Mendes, of broker John Charcol, explained: “Swap rates have not fallen sharply, but they have held broadly steady, and that stability matters as much as the direction of travel. Five-year swaps are at 4.61 per cent, effectively unchanged on a month ago, while two-year swaps sit at 4.6 per cent. “At these levels there is still enough margin for lenders to offer sub-5 per cent deals to borrowers at 60 per cent LTV.” Peter Stimson, head of mortgages at lender Mpowered, said that stabilising swap rates allowed lenders to price with “a certain level of certainty rather than simply having to build in an additional buffer.” Aaron Strutt, product and communications director at Trinity Financial, added: “We are coming up to the end of the year and lenders want to hit targets at a time when there are currently less buyers about. This means they need to lower rates to attract more borrowers.” What should you do if you’re remortgaging? If your fixed deal is ending in the next six months, you can start looking at new deals from lenders. Mendes said: “Borrowers with a deal ending in the next six months can typically secure a new rate now, and many lenders allow a switch to a cheaper product before completion if rates continue to fall, which offers some protection either way.” If rates go up, you will have the cheaper deal locked in, so you won’t pay more.