Mortgage cuts continue as HSBC and Barclays cut rates

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

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

HSBC’s lowest five-year fixed rate has been cut by 0.19 percentage points to now offer a market-leading 3.95 per cent, with a fee of £999.

However, Barclays has also announced that it will cut its lowest five-year fixed rate from 4.04 percent to 3.84 percent from tomorrow.

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 cut the benchmark interest rate from 5.25 percent to 5 percent on August 1, and markets are predicting a further cut later this year.

HSBC best buy fixed mortgage deal

HSBC is offering a 3.95 percent interest rate for five years to both homebuyers and first-time homebuyers with a minimum 40 percent down payment.

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

But Barclays has done even better, at least for home movers. The 3.84 percent deal, aimed at home movers buying with a deposit of at least 40 percent, will lead the market by a long way when it launches on Thursday.

Someone with a mortgage of £200,000 to be repaid over 25 years can expect a monthly payment of £1,038 with Barclays.

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

‘It’s game on in the mortgage market now. More lenders going below 4 percent are very welcome.

‘The hope now is that these competitive rates will increase loan-to-value tranches, helping more borrowers.’

Ranald Mitchell, director at Charwin Mortgages, believes falling interest rates will boost the housing market.

“Barclays’ decision to cut mortgage rates to below 4 percent is a relief for borrowers and a welcome boost to the housing market,” Mitchell said.

“This bold move will certainly arouse the interest of potential buyers who have so far been hesitant and waiting for better rates.”

In addition to Barclays’ flagship deal with an interest rate of less than 4 percent, the bank has also taken the lead in two-year fixed products.

The 4.22 per cent two-year rate carries an interest rate of £899 and is available to homebuyers who put down a minimum 40 per cent deposit.

HSBC has the second best two-year fixed rate deal at 4.41 percent.

Given that the average market rate for a two-year mortgage remains at 5.74 percent, this will seem quite low to many borrowers, according to interest rate monitor Moneyfacts.

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

Statement of Intent: Instead of making marginal rate cuts, Barclays has offered a rate of 3.84%, undercutting competitors by more than 0.1 percentage points

In addition, homeowners currently refinancing their mortgages will benefit from Barclays’ latest move. There are around 700,000 fixed rate deals expiring in the second half of this year, according to UK Finance.

Barclays’ lowest interest rate for homeowners who remortgage and have 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 fee of £999.

The second best lender is MPowered Mortgages, which charges 4.19 percent.

From tomorrow, people with 25 percent equity in their home will be able to get just 4.2 percent from Barclays if they fix it for five years.

The second best lender is MPowered Mortgages, which charges 4.35 percent.

HSBC has also cut rates for homebuyers and first-time homebuyers with a 25 percent deposit. Rates for remortgaging have also been cut.

What is the future for mortgage rates?

Mortgage advisers expect more major lenders to follow the lead of Barclays and HSBC in the coming days and weeks.

This is partly because lenders compete with each other for new business so they can stay on track and meet annual targets.

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

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

Is it going downhill again? Mortgage lenders have been cutting interest rates in recent weeks

Mortgage lenders enter into these agreements to protect themselves against the interest rate risk associated with providing fixed-rate mortgages.

Simply put, swap rates reflect what financial institutions expect in terms of future interest rates.

On Monday, five-year swaps were at 3.57 percent and two-year swaps at 4 percent.

This is down from 3.89 percent and 4.4 percent respectively at the beginning of last month and down from 4.73 percent and 5.41 percent a year ago.

Darryl Dhoffer, mortgage adviser at The Mortgage Expert, told news agency Newspage: ‘Sonia swaps continue to decline and that is likely to be contributing to the rate cuts from banks like HSBC and Barclays.

“Every cut counts when it comes to mortgages, so we’re moving in the right direction. It looks like it’s going to be an unusually busy August.”

However, Nicholas Mendes, mortgage technical manager at broker John Charcol, did have a warning.

“While it may be tempting to hold off in the hope that mortgage rates will continue to fall, it’s important to stress that nothing is guaranteed,” Mendes said.

‘If something stirs the market, it is possible that the current downtrend will be slowed or interrupted.

‘For this reason, it is advisable to secure a rate early. Keep an eye on the market and if rates continue to fall, you can switch to a new deal with the same lender or opt for a different one. If rates rise, you will have secured favourable terms,’ he said.