Homeowners and prospective buyers can expect further mortgage rate cuts in the coming weeks, brokers have said.
In recent weeks, major lenders have slashed their rates, and experts say competition to attract business this summer is likely to lead to further reductions this month.
Barclays and HSBC each cut their rates for the second time in two weeks on Friday which followed Halifax lowering rates on Wednesday and Santander cutting them on Thursday.
Leeds Building Society is due to make cuts to rates on Monday morning, with further lenders to follow.
Brokers have said that lenders are jockeying to attract business before schools break up for their summer holidays, but that rates are also likely to fall this year as the Bank of England is expected to cut interest rates, sparking new confidence in the housing market.
“Lenders will probably lower their rates over the next few weeks as they look to get more applications agreed particularly with the school holidays approaching,” said Aaron Strutt of brokers Trinity Financial.
“Hopefully, we will go through a period of more economic stability which should bring down rates and bring more confidence back to the property market,” he added.
Nick Mendes, of John Charcol, said: “I expect further reductions as lenders capitalise on improved market sentiment. They will aim to stay ahead of competitors by continuously making marginal decreases, ensuring they maintain a competitive edge without sacrificing too much margin initially.
“Prospective buyers and home movers understandably delayed committing in recent months, but with mortgage rates turning a corner and a new government now at the helm, we can expect to see competition heating up again,” he added.
“With the next Bank of England meeting in August, we can anticipate about a fortnight of pricing activity, followed by a short pause in continuous repricing. The next milestone, a bank rate reduction, will likely stimulate further purchase and remortgage activity,” he said.
Justin Moy, of EHF Mortgages, told i that he expected “a shallow, but welcome down-pricing over the summer.”
He said that longer-term lenders would be studying how the new Labour government would “change the habits of both developers and borrowers over the coming months.”
After recent elections, economic and political certainty has injected new life into the property market, and it is likely banks would try and capitalise on this by offering competitive rates to borrowers.
Richard Donnell, of property portal Zoopla, explained that the housing market had been “doing well irrespective of the election.”
But he added. “Sales are up and people are getting on and making moving decisions. The certainty of a big majority may well give a boost to market sentiment. We saw a big bounce in market activity post the 2019 general election just because there was a ‘direction of travel’ confirmed which boosted certainty.”
Although mortgage rates broadly follow Swap rates – which are based on long-term predictions of what will happen to the Bank of England base rate – they can also be influenced by banks’ desire to attract business if more people are looking to buy homes.
The Bank of England base rate is set to fall in 2024, and although lenders will have priced this into their mortgage rates already to some degree, experts say the actual reality of a cut, after months of speculation, could also put downward pressure on mortgage rates.
“The expected cuts in the base rate are already reflected in current fixed-rate mortgage pricing. However, as the Bank Rate decreases, the market is likely to gain more confidence in the prospect of further reductions, potentially leading to additional cuts in fixed mortgage rates by around 0.5 percentage points this year. This trend could provide substantial relief to homeowners and prospective buyers, making borrowing more affordable and stimulating activity in the housing market”, Mr Mendes explained.
Interest rates could fall as soon as August, though at the start of the year, markets expected a fall in the first half of 2024, which did not come to fruition.
Rates are slowly falling across the board though. Two weeks ago, the average two-year fixed mortgage rate was 5.97 per cent. and the average five-year fixed mortgage rate was 5.53 per cent.
Now, these average rates have fallen to 5.93 per cent and 5.51 per cent respectively.
Fixed-rate mortgages are the most common type among homeowners. They ensure people pay a set amount each month for a pre-agreed period of time, usually two or five years.
Most who are moving on to new fixed mortgages now will pay far more than they previously did, as a result of interest rates and therefore mortgage rates soaring in the past few years.
Back in 2021, rate of below 1 per cent were available for borrowers with large deposits or equity, but now, rates are above 4 per cent across the board.
However, they have come down since their peak last summer, when expectations were that interest rates could rise further. In July last year, average two-year rates got well above 6 per cent.