Are we round the corner with mortgage woes? Banks start a price war through interest rate cuts

Banks have launched a mortgage price war that will bring much-needed relief to troubled homeowners.

Halifax, the country’s largest lender, will cut the cost of its loans by up to 0.71 percentage point. The big move follows cuts announced this week by HSBC, TSB and Nationwide.

Brokers predicted last night that mortgage rates would now be cut elsewhere.

“Halifax is making the biggest rate cut I’ve ever seen from a high street lender,” said Jamie Lennox of Dimora Mortgages.

“I expect others to cut their rates this week, which could spark a price war.”

The cuts will further bolster hopes that mortgage costs have peaked, even though borrowers still have near-record payments to make.

Five-year fixes at Halifax, part of Lloyds Banking Group, fall to 5.28 percent starting tomorrow for borrowers with 40 percent equity. They had paid 5.99 percent.

The lender also slashed its two-year deals by up to 0.27 percentage points. Buyers with a 20 percent down payment pay 6.18 percent.

Nationwide, the second largest lender, cut some fixes by up to 0.55 percentage point yesterday, while HSBC cut rates by up to 0.35 percentage point in its second round of cuts in two weeks. TSB also lowered its prices by up to 0.4 percentage point.

According to MoneyfactsCompare, the average two-year deal now stands at 6.83 percent and five-year deals at 6.34 percent.

The falls follow the Bank of England’s decision to raise key interest rates to 5.25 percent last week. Lenders had previously expected it to hit 6 percent by the end of the year.

But June’s lower-than-expected inflation rate started a run on rates as the market cut its estimate for the BoE peak.

The cost for banks to borrow money to lend to homeowners, known as the “swap rate,” has finally stopped rising as there are signs that inflation is starting to ease.

Nationwide confirmed that this had enabled the lender to “cut rates for new customers.”

R3 Mortgages’ Riz Malik said: ‘I expect other major lenders to cut rates by the end of the week. This price revision will benefit thousands of households who want to renegotiate their mortgages between now and the end of the year.”

All eyes are on the next set of inflation numbers – to be released next Wednesday – which will confirm how much the cost of living has risen in the 12 months to the end of July.

The falling cost of mortgages will be a relief to homeowners, but many still face a major shock when their fixed rate deals end.

According to UK Finance, the industry’s trade body, around 800,000 borrowers with a fixation will need to re-mortgage this year. Home prices have been hit by rising interest rates and the cost of living crisis.

Halifax figures show the average home has lost nearly £1,000 of its value in the past month, falling 0.3 per cent to £285,044.

Property prices have plummeted faster in some areas, including the South East, where value fell by 3.9 per cent, or an average of £15,500 year on year.

But Tom Bill, head of UK residential research at Knight Frank, said: ‘Some lenders are cutting mortgage costs as Bank of England rates approach their peak. year.’

The Bank began raising its interest rates in December 2021, when they were as low as 0.1 percent, in an effort to quell skyrocketing inflation, which peaked at 11.1 percent last October.

This was fueled by a rise in energy prices following the Russian invasion of Ukraine.

Headline inflation was 7.9 percent in June, down from 8.7 percent in the previous month.

It is expected to fall below 7 percent by next week’s census. Wages are expected to rise faster than inflation next year, boosting many households.

Economists are already starting to see this trend, with data expected next week to show salaries outpacing inflation for the first time in 14 months.