In a surprising move, HSBC has followed the lead of other major UK banks by reducing its mortgage rates. The changes are poised to take effect on Wednesday, marking a significant shift in the housing market.
Barclays Leads the Way
Barclays recently lowered its fixed-rate home loan costs for new deals, setting the stage for others to follow. HSBC’s reductions are the latest in a trend that mortgage brokers expect will continue. However, the impact on borrowers might still be limited.
Despite the reductions, borrowers face high costs. Many could see their monthly repayments rise significantly once their current, cheaper deals expire. The competition among lenders, particularly during the election campaign, has been a key factor in the fluctuating rates.
Current Mortgage Rates
According to Moneyfacts, the average rate for a two-year fixed mortgage is 5.96%, while a five-year deal averages 5.53%. These figures indicate that any reductions are being implemented cautiously and gradually.
David Hollingworth from L&C notes, ‘These moves suggest that the recent edging up in rates is now unwinding and most cuts are being made in small steps.’ Fixed mortgage rates remain unchanged until the deal expires, typically after two or five years.
The Expiry of Fixed-Rate Deals
This year, approximately 1.6 million existing borrowers will see their relatively cheap fixed-rate deals expire.
If borrowers do nothing when their fixed-rate deals end, they revert to a variable rate. This can be very costly, urging borrowers to select a new rate promptly.
Spring usually brings more activity to the housing market. However, uncertainty over political outcomes may have dampened this year’s trend.
Bank of England’s Role
Borrowers are closely watching the Bank of England’s Monetary Policy Committee (MPC), which will decide on interest rates at its next meeting on 1 August. Recent signals from the MPC suggest that a majority might support a rate cut.
Optimism about a potential rate cut has likely spurred the latest reductions by major lenders. They are keen to attract more customers in a sluggish market.
Andrew Montlake from mortgage broker Coreco said, ‘Lenders will be keen to kickstart a market lethargic from the election, hot weather, and football.’
Lenders’ Strategic Moves
Major lenders are eager to rejuvenate the housing market by reducing rates. This is seen as a strategic move to attract customers and boost economic activity.
The recent positive news about falling inflation might be temporary, prompting more cautious actions from the Bank. Michelle Lawson from Lawson Financial noted that while borrowers are ‘beleaguered,’ more lenders might cut rates in the coming days.
Figures from UK Finance show a further decrease in the number of people paying only the interest on their home loans, despite challenging conditions for borrowers.
Conclusion
HSBC’s decision to cut mortgage rates signals a broader trend among UK banks. While the overall impact might be modest, this could mark the beginning of a more borrower-friendly environment. Borrowers should stay vigilant and proactive in managing their mortgage deals as the market evolves.
The recent rate cuts by HSBC and other major UK banks could offer some much-needed relief to borrowers. However, it’s important to remain cautious and stay updated on market trends. The decisions made by the Bank of England in the coming months will be crucial in shaping the future of mortgage rates in the UK.