Borrowers' pain eased as lenders cut mortgage rates

Adapted from a BBC News article 3 Jan 2024

Mortgage lenders have started the year by cutting rates, taking some of the pain out of the cost of a new deal for homeowners.

The UK's biggest lender, the Halifax, has cut some interest rates by close to one percentage point, with brokers now expecting others to follow suit.

HSBC has announced it will make cuts on Thursday, in what is being described as a "fast-moving market".

But homeowners are being warned to pay close attention to what is offered.

Rate expectations

Mortgage rates will remain higher than many people have been accustomed to because of significant changes over the last two years.

The interest rate on a fixed mortgage does not change until the deal expires, usually after two or five years, and a new one is chosen to replace it. Doing nothing would leave people on a variable rate, which are very expensive.

Some 1.6 million homeowners will see their current fixed-rate deal expire over the next 12 months, the vast majority of whom could see their monthly repayments rise quite sharply.

However, competition between lenders means the financial pain may not be as intense as some would have feared.

Halifax is reducing its rates, with interest on a two-year fixed deal being cut by up to 0.83 of a percentage point. HSBC will follow on Thursday with a two-year fixed rate for remortgages (for someone with at least 40% equity in their home) falling below the 4.5% for the first time since early June last year.

Lenders have been under pressure to reduce mortgage rates, because the cost of funding these home loans has dropped.

Although the Bank of England's benchmark interest rate has been held three times at 5.25%, economists expect the next move to be a cut - an expectation that has already fed through to lenders' calculations.

There is also competition to keep hold of existing custom with relatively little activity among new buyers.

Overall, the average rate on a two-year fixed mortgage has only dropped marginally in recent days, to now stand at 5.93%, according to the financial information service Moneyfacts.

The "best-buys" have dropped by about 0.8 percentage points in the last three months, it said.

This is a very positive start to 2024! Regardless of your situation, we will be delighted to discuss your mortgage options with you.

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