Mortgage cuts continue as HSBC and Barclays reduce rates

Mortgage rates continue to fall this week, as HSBC and Barclays become the latest lenders to cut the cost of home loans.

HSBC is the third lender to reintroduce a sub-4 per cent five-year fixed deal, following mortgage rate cuts by Nationwide and NatWest in recent days.

HSBC’s lowest five-year fixed rate was cut by 0.19 percentage points and currently offers a market leading 3.95 per cent, with a £999 fee.

However, Barclays has also announced that from tomorrow, it is cutting its lowest five-year fixed deal from 4.04 per cent to 3.84 per cent. 

Rate cuts intensified last week after the Bank of England cut interest rates for the first time in more than four years.

The central bank reduced base rate from 5.25 per cent to 5 per cent on 1 August and markets are forecasting a further cut later this year.

HSBC best-buy fixed mortgage deal

HSBC is offering a 3.95 per cent five-year fix to both home movers and first-time buyers purchasing with at least a 40 per cent deposit.

Someone securing this rate with a £200,000 mortgage being repaid over 25 years could expect to pay £1,050 a month.

But Barclays has gone one better, at least for home movers. Its 3.84 per cent deal aimed at home movers buying with at least a 40 per cent deposit is set to lead the market by some distance when it launches on Thursday. 

Someone with a £200,000 mortgage repaying over 25 years could expect to pay £1,038 a month with Barclays.

Stephen Perkins, managing director at broker Yellow Brick Mortgages, told the news agency, Newspage: ‘Barclays has made a real statement of intent here. 

‘It’s game on in the mortgage market now. More lenders going sub-4 per cent is greatly welcomed. 

‘The hope now is that these competitive rates will filter up the loan-to-value brackets to help more borrowers.’

Ranald Mitchell, director at Charwin Mortgages, thinks that falling rates are likely to ignite the property market.

‘Barclays’ move to cut mortgage rates to sub-4 per cent is a breath of fresh air for borrowers and a welcome boost for the property market,’ said Mitchell. 

‘This bold step is sure to ignite interest among prospective buyers who have been sitting on the fence, waiting for better rates.’

Alongside Barclays’ table topping sub 4 per cent deal, the bank has also seized top spot across two-year fixed products. 

Its 4.22 per cent two-year fix comes with a £899 fee and is available to home buyers purchasing with at least a 40 per cent deposit. 

HSBC has the next best two-year fixed deal at 4.41 per cent. 

Given that the average market rate for a two-year fix remains at 5.74 per cent, according to rates scrutineer Moneyfacts, this will sound fairly low to many borrowers.

Someone securing the Barclays rate with a £200,000 mortgage being repaid over 25 years could expect to pay £1,080 a month compared to the market average of £1,257 a month.

On top of that, homeowners currently remortgaging stand to benefit from Barclays’ latest move. There are around 700,000 fixed-rate deals due to end in the second half of this year, according to UK Finance. 

Barclays’ lowest five-year fix for homeowners remortgaging with at least 40 per cent equity in their home (60 per cent loan-to-value) will fall to a market leading 4.06 per cent, with a £999 fee.

The next best lender is MPowered Mortgages, charging 4.19 per cent.

Those with 25 per cent equity in their home can get as low as 4.2 per cent with Barclays from tomorrow when fixing for five years. 

Again, the next best lender is MPowered Mortgages charging 4.35 per cent.

HSBC has also cut rates for home movers and first-time buyers purchasing with a 25 per cent deposit as well as rates for those remortgaging.

What next for mortgage rates?

Mortgage brokers expect more big lenders will follow Barclays and HSBC over the coming days or weeks.

This is in part down to lenders competing for new business in order to keep on track and hit annual targets.

However, it is also driven by the money markets and expectations around the future of interest rates.

These expectations are reflected in Sonia swap rates. These are agreements in which two counterparties, for example banks, agree to exchange a stream of future fixed interest payments for a stream of future variable payments, based on a set amount.

Mortgage lenders enter into these agreements to shield themselves against the interest rate risk involved with lending fixed rate mortgages.

Put more simply, swap rates show what financial institutions think the future holds concerning interest rates.

As of Monday, five-year swaps were at 3.57 per cent and two-year swaps were at 4 per cent.

This is down from 3.89 per cent and 4.4 per cent respectively at the start of last month and down from 4.73 per cent and 5.41 per cent a year ago. 

Darryl Dhoffer, mortgage broker at The Mortgage Expert told the news agency, Newspage: ‘Sonia swaps continue to head south and that’s likely feeding into these rate reductions from the likes of HSBC and Barclays. 

‘Every cut counts when it comes to mortgages so we’re heading in the right direction. It’s shaping up to be an unseasonally busy August.’

Nicholas Mendes, mortgage technical manager at broker John Charcol had a word of caution, however.

‘While it may be tempting to delay in the hope that mortgage rates will continue to fall, it’s important to stress that nothing is guaranteed,’ added Mendes.

‘If anything unsettles the market, we could see a delay or pause in the current downward trend. 

‘For this reason, securing a rate early is advisable. Continue to review the market, and if rates fall further, you can switch to a new deal with the same lender or opt for a different one. If rates increase, at least you have secured favourable terms,’ he said.