Lenders cut mortgage rates as a result of the price war, as struggling homeowners get a needed boost

Struggling homeowners got a boost yesterday after a five-year mortgage deal with a fixed rate below 5 per cent went on sale for the first time since June.

Brokers said a “full-scale price war” is now “well underway” as the pace of rate cuts has increased.

Britain’s biggest lenders have made a series of rate cuts in recent days, giving borrowers a much-needed reprieve after interest rates soared over the summer.

A five-year, 4.99 per cent fixed rate deal was announced yesterday by The Mortgage Works, owned by Nationwide Building Society.

The home loan is only for borrowers who want to rent out a home, charges a 3 percent fee and is available to those with a loan-to-value ratio of 55 percent or lower.

According to experts, it is the first home loan with a fixed interest rate to fall below the 5 percent limit since the end of June.

Santander’s best five-year fixed rate residential mortgages for buyers stood at 5.1 per cent on Thursday, while Cumberland Building Society’s best five-year refinance mortgage was 5.22 per cent, according to broker L&C.

Broker Ranald Mitchell of Charwin Private Clients said the new 4.99 per cent rate would put pressure on other lenders to follow suit.

“Seeing interest rates starting with a four is a sight to behold and could be a boost to the market and borrower confidence,” he said.

Gary Bush, financial advisor at MortgageShop.com, said lenders have “moved from shut-up shop mode to a full-blown price war,” adding: “The mortgage rate war is well underway and it seems likely that there will be a busy end to 2023.’

Halifax, Britain’s largest lender, today cut rates for new customers by up to 0.5 percentage points. It now offers five-year fixed deals at 5.15 percent. Coventry Building Society has also reduced its rates today.

Barclays announced interest rate cuts yesterday, with plans to cut costs by up to 0.1 percentage point.

Earlier this week, Nationwide announced it would cut financing costs by as much as 0.29 percentage points, while Santander has cut its deals by up to 0.14 percentage points.

Challenger banks Skipton Building Society and MPowered Mortgages are among those that have already made further cuts.

The cuts will further strengthen hopes that mortgage costs have peaked.

Bank of England Governor Andrew Bailey told MPs last week that the end of interest rate hikes was now “much closer” but also warned that borrowing costs could still rise due to high inflation.

Interest rates have been raised 14 times since December 2021 to 5.25 percent, adding to the pain for borrowers as the Bank of England battles to get inflation under control. They are expected to rise again next week – to 5.5 percent.

The Bank has been urged to stop raising interest rates amid fears of a recession after official figures released on Tuesday showed GDP contracted 0.5 percent in July.

According to interest rate monitor MoneyfactsCompare, the average two-year mortgage agreement remained at 6.65 percent on Thursday, with the typical five-year rate at 6.14 percent.

Homeowners have seen borrowing costs rise in recent months. But lenders have cut interest rates since mid-July after data showed inflation had slowed beyond expectations.

Jamie Lennox, of estate agent Dimora Mortgages, said a sharp fall in house sales was forcing lenders to review their prices in a bid to gain as much market share as possible.

‘It is no surprise that the outlook is changing. The concern is that these cuts are too little, too late to save the housing market,” he said.

Home prices fell at the fastest pace in fifteen years in August, according to lender Halifax. Higher interest rates have affected buyer demand, forcing many people to delay property purchases in the hope that interest rates will fall back in the coming months.