Major banks are cutting mortgage rates – the first major cuts since October
- One broker suggests other lenders may cut rates as a result of falling swap rates
Barclays has become the first major lender since early October to announce large-scale mortgage rate cuts.
The bank says it will reduce rates on a number of products by as much as 0.20 percentage points from tomorrow.
The changes will benefit both people looking to buy and homeowners needing to remortgage.
The cut by Barclays comes against the backdrop of a wave of mortgage rate hikes in recent weeks by major lenders.
Since the beginning of October, the lowest five-year fixed rate has risen from 3.68 percent to 4.14 percent, while the lowest two-year rate has risen from 4.84 percent to 4.22 percent.
Barclays’ lowest two-year rate for those buying with at least a 40 percent deposit will be cut from 4.33 percent to 4.23 percent, making it the second-lowest two-year fixed rate on the market.
Surprise cut: Barclays has become the first major lender since October to cut its mortgage rates
The lowest five-year rate will drop to 4.18 percent, with a fee of £899. Once again, this will be one of the cheapest rates on the market.
Homebuyers with deposits between 5 and 25 percent will also see some benefit.
Barclays’ lowest five-year fix for someone buying with a 10 per cent deposit will drop to 4.81 per cent tomorrow with a £999 fee. Barclays Premier bank customers can secure an interest rate of 4.76 per cent.
Those who buy with a 25 per cent deposit can secure a rate of 4.27 per cent with an £899 fee.
If a £200,000 mortgage was paid off in 25 years, that would mean paying £1,086 per month.
First-time buyers looking to get on the ladder without a deposit should also look at Barclays’ Springboard mortgage, which will also reduce interest rates.
This product requires family and friends to help with the down payment. The helper provides a 10 percent deposit as security for five years and this is placed in a Helpful Start account that earns interest and is repaid after five years.
The Barclays Springboard deal, which offers a mortgage covering 100 per cent of the purchase price, will see interest rates fall from 5.86 per cent to 5.76 per cent tomorrow. There is no compensation.
Someone buying a £200,000 property with this product could therefore expect to pay £1,259 per month from tomorrow, instead of £1,272 at current rates.
Mortgage brokers were surprised by the news given the number of interest rate increases in recent weeks.
Justin Moy, director of EFH Mortgages said: ‘This is a somewhat surprising announcement from Barclays, because the mortgage market had little room for any kind of rate cut before Christmas.
“While these cuts will not be enough to rebalance the economy, they will be encouraging for borrowers and suggest that improvements may be on the horizon.”
Mike Staton, director of Staton Mortgages, added: “Most people assume that a rate increase from a lender is because they are afraid of the current economic situation.
‘Barclays proves with this reduction that this is not always the case.
‘Barclays is looking forward to lending and wants to end 2024 on a high. They won’t be the only lender to cut interest rates before the end of this year.’
Nicholas Mendes, mortgage technical manager at John Charcol, believes Barclays has cut mortgage rates in response to recent market changes.
Fixed mortgage rates are often reflected in Sonia swap rates. Simply put, swap rates show what lenders think the future holds in terms of interest rates.
On November 22, two-year swaps stood at 4.12 percent, a trend that is well below the current base rate but broadly in line with the equivalent lowest two-year fixed-rate mortgage deals.
Five-year swaps had risen above 4 percent in recent weeks but have since retreated. On November 22, they stood at 3.89 percent.
“With swap rates falling in recent days, it’s great to see a lender acting quickly to reflect the slightly improving conditions,” Mendes said.
“While these cuts won’t change the world, they do provide some breathing room for borrowers, especially after the recent trend of rising interest rates among major lenders.
“This could also indicate the potential for more price revisions across the market if conditions remain stable.”