Barclays and Santander are the next major lenders to cut mortgage rates

Barclays and Santander have become the latest major lenders to cut mortgage rates.

According to Moneyfacts, the two banks join a total of 29 other lenders who have also reduced interest rates in 2024.

From tomorrow, Barclays will cut rates by up to 0.5 percentage points on products aimed at homebuyers, including new best buys on two-year fixed rate deals.

Meanwhile, Santander joins a string of lenders now offering rates below 4 percent. The cheapest five-year solution of 3.89 percent is intended for people who refinance.

Justin Moy, director of EHF Mortgages, said: ‘It’s been a month since Santander last adjusted their prices, but they’ve come back with a bang.

‘Some rate cuts were necessary to remain competitive, but the main deals below 4 per cent for both purchase and remortgage will be more attractive than the fudge in a Can of Quality Street.

Moy added: “These are also significant interest rate cuts from Barclays, for both those looking to buy with small and larger deposits.

‘These will certainly be attractive to starters who want to benefit from the improving market conditions. Mortgage sales in January are well under way.’

– Read: What next with the mortgage interest rate in 2024 – and for how long should you fix the mortgage interest rate?

What are the best mortgage deals from Barclays?

Most notably, Barclays’ cheapest two-year premium, reserved for those who buy with at least a 40 percent deposit, falls from 4.62 percent to 4.17 percent.

This will overtake The Co-Operative Bank’s 4.34 percent deal and make it the lowest rate in the two-year fixed rate market.

According to Moneyfacts, the average two-year fixed rate for those buying with at least a 40 percent deposit is currently 5.41 percent.

Someone needing a £200,000 mortgage to buy a property worth £350,000 may qualify for the Barclays deal.

If so, they would end up paying £1,075 per month based on a 25-year term, compared to £1,217 per month based on the average rate.

Those with at least a 25 percent deposit may also be able to take advantage of Barclays’ interest rate cuts.

The two-year fixed agreement for a mortgage covering 75 percent of a property’s value (75 percent loan-to-value) is 4.2 percent.

As for those with a 5 percent deposit – most likely first-time buyers – Barclays has also improved its offering in that area.

The two-year mortgage guarantee for people with a 5 percent down payment will be reduced from 5.8 percent to 5.5 percent, without any product costs involved.

Someone using this to buy a £200,000 property with a £190,000 mortgage can expect to pay £1,167 per month – if it is paid back over 25 years.

It’s worth pointing out that this Barclays deal is beaten by a number of other lenders. The Co-operative Bank is offering two-year mortgages for those who buy with a 5 per cent deposit at 4.99 per cent, albeit with an additional £749 charge.

“This is a very important step by Barclays,” said Gareth Davies, director at South Coast Mortgage Services. “The best we’ve seen in 2024 so far.

‘The fact that the two-year fixed deals are so much closer to 4 percent is not something that many would have predicted a few months ago.

‘With their ability to also handle large business volumes, this is a serious shift in the market and other lenders will lose a lot of business to them unless they also join the queue. Bravo Barclays.’

> Best mortgage interest calculator: Check what a new solution would cost you

What are Santander’s best mortgage deals?

All fixed rates for homes in Santander will fall by 0.17 to 0.82 percentage points.

The lowest rate is now 3.89 percent over five years for those who take out a new mortgage with at least 40 percent equity in their home. This deal includes a product cost of £999.

Someone refinancing a £200,000 mortgage with 25 years left on their contract could expect to pay £1,044 a month for this deal.

For homebuyers with a deposit of at least 40 per cent, Santander is offering a five-year fix at 3.94 per cent with a £999 fee.

Existing Santander mortgage customers looking to refinance with the lender will also benefit from cheaper rates if they stay with the lender. This is called a product transfer.

Apart from that, Santander is also reducing rates by up to 0.56 percentage points for people buying new builds.

The country has also lowered its two- and five-year mortgage rates by up to 0.56 percentage points.

Elliot Culley, director of Switch Mortgage Finance, said: ‘Santander has had to respond to interest rate cuts from other major lenders over the past week and these cuts will bring these in line with the more competitive products currently available to customers.

“Their prime rate is the five-year deal with a 60 percent loan-to-value ratio, which will certainly be the envy of the other mortgage providers.”

> How to remortgage your home: a guide to finding the best deal

Will mortgage rates continue to fall?

Despite mortgage lenders seemingly locked in a price war over mortgage rates, some mortgage brokers believe rates are unlikely to drop much lower.

This is due to the fact that lenders tend to price their fixed rate mortgages based on future market expectations of interest rates.

Market interest rate expectations are reflected in the swap rate. These swap rates are influenced by long-term market projections for the Bank of England base rate, as well as the wider economy, internal bank targets and competitor prices.

Sonia swaps are used by lenders to price mortgages. Five-year swaps currently stand at 3.61 percent. Two-year swaps now amount to 4.19 percent.

This is slightly higher than at the beginning of the year, when five-year swaps were 3.4 percent and two-year swaps were 4.02 percent.

One mortgage broker even believes that interest rates will rise rather than fall.

Nicholas Mendes of mortgage broker John Charcol says: ‘Gilt yields and swaps rose every day last week, and again yesterday.

“As the gap narrows, interest rates below 4 percent for a five-year term, or below 4.5 percent for a two-year term, are no longer feasible for lenders.

“I suspect the next rate change from the lenders who announced cuts last week will be upward.

‘It will be interesting to see which lenders have enough volume demand, even with tight margins, to maintain their current low interest rates for the longest time.

He adds: ‘The downward price trajectory is happening much faster than expected, so any pause in repricing is likely to be a small blip, rather than a sign of things to come.

‘What is important to emphasize is that although the markets appear stable, they are still prone to movement, so it is incredibly difficult to anticipate the right time to make a recovery.

‘By using an estate agent, but also by continuously assessing the market during your application, you can be sure that you get the best rate until completion.’