Several big lenders including Nationwide, HSBC and TSB have cut rates on their fixed mortgage deals in a sign that home loan costs may be close to peaking after surging to nearly 7%.
The reductions follow data last week that showed inflation fell further than expected in June, helping to calm financial markets and trim expectations of the number of interest rate rises still required to tame inflation.
Next week, the Bank of England is expected to raise rates for a 14th successive time by a quarter point to 5.25% and investors now think rates will peak at 5.75% next March. Previously it was thought UK interest rates could rise to as high as 6.5%. This would have pushed up even further home loan rates for Britons, many of whom are coming off deals priced at below 2%.
Increased housing costs put further pressure on Britons already struggling to cope with higher food and energy bills. An official poll published on Friday showed 45% of people paying rent or a mortgage had seen the cost rise in the past six months. The July poll by the Office for National Statistics also revealed 40% were finding it hard to make these payments. This compares with 31% a year ago.
After rising relentlessly from less than 6% in the middle of June, the average two-year fixed-rate mortgage hit 6.86% on Wednesday, according to the data firm Moneyfacts. On Thursday, it had inched down to 6.83% and on Friday was lower again at 6.81%.
This gear change was reflected in improved deals from big names including Barclays, TSB, HSBC and Nationwide, which all cut their rates in recent days, with analysts anticipating average rates will continue to fall.
Sarah Coles, the head of personal finance at Hargreaves Lansdown, said it was possible fixed mortgage rates had peaked while the same was true of savings rates. However, rates for homeowners on variable rate deals would still increase if the base rate went up as expected, she said.
“We’ve seen a flurry of savers fixing their rates while the going is good,” said Coles. “It’s a sensible approach, because although the market is predicting another couple of rate rises, when it comes to fixed-rate mortgages and savings, we may well be around the peak.”
The rate reductions offer some overdue good news for borrowers, but no one is expecting a return to the super-low rates enjoyed by borrowers in recent years.
“For major moves much below 6%, we can expect to have to wait for inflation to fall on a sustained basis and the Bank of England to be weighing up rate cuts,” Coles said.
“However, it will be enough of a shift to make a material difference to remortgagers who were dreading the hunt to find a new deal – and some buyers who had been priced out of the market.”
