Major lenders cut mortgage rates and more could follow – what it means for you as experts predict ‘summer of savings’
MAJOR lenders are cutting mortgage rates in a welcome boost for borrowers.
NatWest and Barclays have slashed rates by up to 0.31% while HSBC has announced it will be cutting rates from tomorrow (June 26).
HSBC said more than 300 deals will be cut across its residential and Buy to Let mortgage ranges but is yet to say by how much.
Barclays is slashing rates on 20 residential mortgage deals.
This includes on a two-year fixed product with £899 fee and 60% loan-to-value from 4.98% to 4.67%.
It is also cutting a five-year fixed home loan with £899 fee and 60% loan-to-value from 4.41% to 4.23%.
NatWest meanwhile dropped rates on a number of fixed deals last week.
It comes with markets expecting the Bank of England (BoE) to cut its base rate in August this year after policymakers kept it at 5.25% last week.
The three high street lenders could be bringing down their mortgage rates in anticipation of such a cut.
Ranald Mitchell, director at Charwin Private Clients, said the lenders announcing cuts could bode well for other borrowers.
“HSBC has ignited a sizzling summer of savings for mortgage holders with these latest rate cuts, following Barclays’ lead,” he commented.
“As other lenders join the trend, homeowners may finally see the relief they’ve been seeking, though a broader market shift is still needed to truly spark the housing market.”
However, mortgage rates remain relatively high for millions of borrowers after successive BoE base rate hikes.
Moneyfacts said the average rate on a two-year fixed deal stands at 5.96% while the average five-year deal has a rate of 5.53%.
Dariusz Karpowicz, direct at Albion Financial Advice, said HSBC, Barclays and NatWest slashing rates was only a good thing though.
“This is a welcome relief for borrowers who have been feeling the squeeze of higher rates.
Should you fix?
HERE we take you through the pros and cons of a fixed mortgage deal.
Pros
- Beat potential rate rises – You won’t feel the brunt if the Bank of England raises the base rate.
- You’ll only be credit checked once during the term – This means that if your score is lowered because you’ve taken out a credit card or store card after you’ve taken out the deal, then it won’t have an effect on your mortgage.
- Protection from changes to lending criteria – If mortgage affordability criteria is tightened then you might not be able to remortgage at a competitive rate. A fixed-term gives you more time to meet the criteria.
- Predictability – You know exactly how much your mortgage payments will be for the duration of the term making it easier to plan.
Cons
- You won’t benefit if rates fall – You risk missing out on lower rates if the base rate falls during this time.
- Early exit fees – Homeowners face forking out for hefty penalties if they need to end the contract early. These can be as high as 7% of the remaining balance.
- You’ll be charged for paying it off early – If your circumstances change and you want to make substantial overpayments or pay it off in full early, you’ll be charged.
- You could end up overpaying – Homeowners with more money to pay off are typically charged higher rates. Locking into a deal when you don’t have that much left to pay could see you miss out on lower rates and as a result you could end up paying more than you need to.
“As temperatures rise, it’s refreshing to see mortgage rates finally heading in the opposite direction.”
How to get the best deal on your mortgage
Snapping up the best mortgage deal depends on what’s available at the time, but there are ways to get ahead of the competition.
Usually the larger the deposit you have the lower the interest rate you can get.
If you’re remortgaging and your loan-to-value ratio has changed, this could also give you access to better rates than before.
A change to your credit score, or an increase in your salary can also help you access better rates.
If you have a fixed rate, you could see higher rates when you come to the end of the current term after the BoE hiked interest rates from 2022 and into last year.
And if you’re nearing the end of a fixed deal in the next six months it’s worth contacting your broker now to lock in a rate.
If they come down between now and the end of your deal, you can always apply for another rate before you remortgage.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it might be worth paying to leave the deal. Make sure you compare costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare for you, with most offering free advice to secure you the best deal for you.
Some brokers charge for advice, so ask them first.
It could cost a couple of hundred pounds but it might save you thousands on your mortgage overall.
You’ll also need to factor in fees for the mortgage, though some have none at all, or you can add it to the cost of the mortgage.
But, be aware that this means you’ll pay interest on it and it will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember, if you decide to remortgage to a new lender you’ll have to pass its affordability checks.
It may also check your credit file to check you have repaid previous debts.
You may also need to provide documents such as utility bills, proof of benefits, your last three months’ payslips, passports and bank statements.
It’s possible to avoid new affordability checks by remortgaging to a new deal with your existing lender, provided you don’t want to borrow more or extend your term.
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