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Lenders have kicked off the year with rate cuts across a series of mortgage products, boosting incentives for purchasers at the start of the buying season.
HSBC, Halifax, Barclays, TSB, NatWest, Nationwide, Clydesdale and Skipton building societies are among lenders to announce reductions in their rates for their fixed or variable mortgages over the past 10 days, following a cut in the Bank of England’s base rate to 3.75 per cent in mid-December.
Nationwide this week announced cuts of up to 0.2 percentage points on its first-time buyer and home mover mortgages, bringing the interest rate for a two-year fix for those with a 40 per cent deposit down to 3.5 per cent with a £1,499 fee, and 3.7 per cent for a five-year fix.
Aaron Strutt, product director at broker Trinity Financial, said: “We expected to start this year with the lenders cutting their rates and making them more attractive to borrowers, and that’s exactly what’s happening.”
NatWest trimmed its two-year fixed-rate mortgage from 4.74 to 4.66 per cent for those with a deposit of only 5 per cent, a type of product often taken up by first-time buyers. Its five-year fee-free fix fell from 4.20 to 4.06 per cent, for those with a 20 per cent deposit.
Brokers said many buyers had been wary of making a big decision in the run-up to the November Budget, when speculation was rife over higher taxes on income and assets.
“When people saw there was nothing really spooky in the Budget, they wanted to get on with things,” said Adrian Anderson, director at broker Anderson Harris. “And now that mortgage rates are often starting with a 3 rather than a 4, people are wanting to move ahead. Business has been busy since the new year.”
HSBC cut rates last week and again this week. A two-year fix available to those with a deposit of 40 per cent fell to 3.56 from 3.59 per cent with a £999 fee. Rates on its equivalent five-year fix stayed the same, at 3.79 per cent.
While competition between lenders has intensified in the first two weeks of the year, not all are cutting. Santander, which had led the best buy tables in the run-up to Christmas, last week raised rates on some of its most attractive deals.
David Hollingworth, director at broker L&C Mortgages, said: “It’s not that we’re going to see fixed rates definitely carry on dropping by another 10 to 20 [basis] points. It’s more about how lenders are positioning themselves around the competition.”
Expectations of further cuts in the Bank of England’s base rate in the coming months may lead people increasingly to prefer a tracker mortgage over a fixed-rate deal, in the hope that their costs ease if base rates fall. But Hollingworth highlighted the impact of lingering political and economic uncertainty.
“I think most people will still be heading towards a fixed rate, particularly given there’s quite a lot going on in the world at the moment,” he said.
Several banks have also loosened their lending criteria so that borrowers may take out up to six times their income, up from around 4.5 times. Metro Bank and Bank of Ireland Bespoke this week “stretched” their multiples to six times salary. Others at this level include Barclays, Nationwide and United Trust Bank, while HSBC offers its Premier customers mortgages of 6.5 times salary.
Simon Gammon, managing partner at broker Knight Frank Finance, said lenders were becoming more “generous”.
“Their margins are still very thin, but they want to do business and they’re quietly confident that activity is picking up in the property market.”
Home buyers are not necessarily borrowing the maximum permitted level, however, as they remain cautious about the need for a bigger cushion of disposable income, Anderson said. “People are not maxing out because they’re still worried about the cost of living.”