Mortgage rates start to fall as lenders announce cuts 

Borrowers see light at the end of the tunnel as some lenders announce mortgage cuts after weeks of rate rises following the US and Israel’s war with Iran. Average mortgage rates for fixed mortgage deals had rocketed due to supply issues arising from the effective closure of the Strait of Hormuz. The strategic restriction to the flow of natural gas and oil caused inflationary pressures, reversing the downward trajectory of UK interest rates and creating turmoil in the mortgage market. However, a number of lenders, including Santander, HSBC and TSB Bank, have begun to turn the tide with a swathe of cuts to mortgage deals.

Which lenders are cutting mortgage rates?

• Skipton Building Society was one of the first lenders to cut rates, having announced reductions of around 0.13% on average, up to 0.21%, on 2- and 5-year fixed-rate deals. It has also relaunched its 3-year fixed-rate mortgage option to offer a middle ground for those looking for a compromise, given that 2-year fixes saw some of the highest rate hikes.
• Santander has reduced rates by up to 0.28% on first-time buyer mortgages with lower deposits and up to 0.30% on tracker mortgages. Tracker mortgages have risen in popularity as borrowers explore these usually less favourable deals in order to bide their time in hopes of further rate cuts.
• HSBC has also announced cuts to its fixed-rate mortgage deals for home movers and first-time buyers with reductions of up to 0.35%.
• Halifax mortgage rates have been cut by up to 0.35% across a range of fixed-rate homemover and first-time buyer products. Its sister intermediary-only lender, BM Solutions, has cut rates across many buy-to-let mortgages too.
• TSB Bank is cutting rates on a number of deals and has announced a reduction of up to 0.45% on home buyer mortgages, including up to 0.15% cuts to shared ownership mortgage rates. But, it is raising rates on product transfers for existing customers by up to 0.15%.
• Atom Bank has cut near-prime mortgage rates, reducing rates across deals for less creditworthy borrowers. It has announced cuts of up to 0.25% on prime mortgages across a range that will benefit those with deposits as small as 5%.
• Leeds Building Society has reduced rates by up to 0.17% on right-to-buy and buy-to-let mortgages, as well as residential loans.

You can find regularly updated mortgage deals in our article "Best mortgage rates in the UK" - these do change often as mortgage deal shelf lives are shorter than usual, as lenders pull and reprice more frequently to respond to market changes.

Will other lenders follow suit?

Nationwide and NatWest have yet to announce any amendments to mortgage rates and with a large share of the mortgage market, many borrowers will be awaiting news from them. However, both lenders are currently competitively placed for a range of fixed-rate mortgage deals, and even with cuts from lenders, maintain positions amongst the lowest deals on our mortgage rate comparison tool. Other lenders may follow suit and announce rate cuts, but may act with greater caution as instability in the Middle East continues to challenge market certainty.

What’s behind the rate cuts?

The War in the Middle East

The rate cuts will be a surprise to many as unrest in the Middle East persists amid, so far, largely failed attempts to reach a resolution to end the war and reopen the Strait of Hormuz, which remains effectively closed - now hindered by both Iran’s threats and the US’s blockade of Iranian ports. However, some of the negotiating difficulties attributed to continued attacks by Israel in Lebanon could be set to ease after a ceasefire came into effect in the area. President Trump has also reiterated optimism for reaching positive outcomes in the upcoming round of talks coordinated by Pakistani officials.

Increased demand for mortgages reduces

Although geopolitical instability has been the leading cause of mortgage rate rises, customer demand over the early period of the war created a secondary driver in raising rates. In early March at the start of the war, a large number of borrowers would have been waiting for rates, which were gradually falling, to fall further before securing a deal. The sudden shift that forced rates upwards will have prompted this group of borrowers off the fence, creating a surge of mortgage applications as they tried to secure a rate before further rate hikes transpired. Lenders use interest rates to curb the flow of business they receive and given the unexpected wave of applications, raising interest rates on mortgage deals may have served to protect profit margins as the wholesale cost of borrowing remained high. As the initial swell of demand reduces, we may be seeing lenders pull levers to reduce rates allowing more business to flow in.

Swap rates and the wholesale cost of borrowing

That wholesale cost of borrowing also plays a part in the cuts from some lenders this week. Swap rates, which reflect the cost of borrowing between banks and underpin the rates that consumers see, have also reduced. The 2-year UK swap rate fell from a peak of 4.68% in mid-March to 4.30% this week, while the 5-year rate fell from 4.58% to 4.34%. Although the fall in these rates that banks use to lend to one another is a positive observation and likely the most prominent reason we’ve seen lenders cut rates, they remain sensitive to any change in geopolitical activity in the Middle East.

Source and lock in the best mortgage deals

Although the rate cuts are cause for optimism, borrowers should act in full knowledge that global events remain unpredictable and a change in the relative calm we currently see in the Middle East could derail these positive movements yet again. So, the wise move would be to secure a deal that meets your needs, particularly if you are approaching the expiration of your current mortgage deal.

Whether you are purchasing a property or remortgaging to renew your existing mortgage, you can usually lock in a mortgage deal without losing the opportunity to secure a better rate if one becomes available. Start your search using our mortgage rate comparison tool, where you can enter your specific mortgage requirements to reveal the best deals from over 90 lenders in the market. The interest rates shown are subject to each lender's specific qualifying criteria, meaning you will have to do a little more work to ascertain those that match your affordability profile. Lenders apply various checks and will require a full picture of your financial circumstances and credit profile to establish whether a mortgage offer can be made to you. The easiest way to save time and, more importantly, avoid declined applications, which could harm your credit profile, is to enlist the help of a mortgage broker. Your mortgage broker will use market knowledge and expertise to match you with a lender, speeding up and increasing your route to a mortgage offer.

Mortgage brokers can be found in your local area using the online directory for financial professionals, Vouchedfor*, where you can select one based on customer reviews and the broker's specialist areas of expertise. The mortgage broker will gauge your needs and take a profile of your circumstances to source a mortgage deal, and can usually access more deals than you may find directly, as lenders often offer mortgages on an intermediary-only basis, which can only be secured by the broker. If you prefer to arrange your mortgage online, you can access mortgage broking services using the online mortgage broker, Habito*, as an alternative. Habito's mortgage advisers act independently and provide free mortgage advice and guidance to help you find and secure your mortgage without the need for a physical appointment.

If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses or take advantage of any exclusive offers - Habito, Vouchedfor