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UK lenders this week began reducing the cost of their fixed-rate mortgages, after a month of steep interest rate rises triggered by market turmoil following the Iran war.
Santander was the biggest lender to announce it would trim its rates, with cuts of up to 0.28 percentage points on a number of its first-time buyer and home mover deals. Its tracker rates will also fall by up to 0.3 percentage points.
TSB said it would reduce two-year fixed rates on house purchases by up to 0.45 percentage points from Friday. Others to put through reductions included Coventry and Skipton building societies, though all new deals offered by lenders remain more expensive than those available before the war.
Brokers said other big lenders were likely to follow suit with cuts next week. Hina Bhudia, partner at broker Knight Frank Finance, said: “This marks the first meaningful relief for borrowers since the conflict in the Middle East began and should signal the start of a broader market repricing lower.”
Swap rates, which lenders use to guide their fixed rate pricing, rose sharply following the start of the conflict at the beginning of March. But they have moderated in the past fortnight, with the two-year Sonia swap rate falling from 4.45 per cent on March 20 to 4.06 per cent this week.
Aaron Strutt, technical director at broker Trinity Financial, said: “This change from Santander hopefully means that some of the other lenders will bring their rates down . . . Nationwide is offering many of the lowest fixes at the moment, priced from 4.66 per cent, but most banks charge between 4.75 per cent and 5 per cent for their two-year fixes.” In February, such loans were available at between 3 per cent and 4 per cent.
Brokers said several lenders had raised their rates, not because of the rising cost of raising wholesale funds for lending out, but because they had been overwhelmed by demand from borrowers scrambling to fix before rates rose further. One reported three times as much business as normal for the time of year. For lenders struggling to cope with the surge in demand, raising rates was a sure way to staunch the flow of applications.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “It seems as though some lenders may have adopted an overcautious approach on pricing as volatility in swaps made it hard to set mortgage rates. Those with the cheapest rates saw service levels suffer, and in some instances products have been pulled at short notice.”
He added: “With Santander reducing rates — not back to where they were at the start of March but better than they have been recently — there is a glimmer of hope for hard-pressed borrowers.”
However, some warned that a short-term easing in the outlook for mortgages could very easily swing back in the other direction. Bhudia said: “Beyond the very short term, there remains significant uncertainty over the trajectory of mortgage rates, given the ongoing volatility in the Middle East.”
