Price war erupts as six of seven major mortgage lenders slash rates

Top mortgage broker says major lenders are now engaged in a price war as rates dip below 4 per cent

A price war has erupted between Britain’s largest mortgage lenders after several banks slashed rates to below 4 per cent, in a significant boost for homeowners.

Barclays and Santander were the latest to cut the cost of fixed-rate deals rates this week by up to 0.82 percentage points.

Santander cut some of its five-year fixed mortgage deals down to below 4 per cent, joining the Yorkshire Building Society, First Direct, Co-operative Bank, Virgin Money and HSBC.

The reduction in costs will come as a welcome relief to the 1.6 million borrowers who have cheaper fixed-rate deals that are expiring this year and face paying higher costs.

Six of Britain’s seven largest mortgage lenders have now cut rates since the start of the year, including the country’s largest lender Halifax, which cut rates on Thursday.

Daryl Doffer, a broker from Mortgage Expert told The Independent: “The elusive mortgage lenders, once titans of stoicism, have engaged now in a price war, slashing rates below 4 per cent.

“But are these siren songs triggering a stampede of homebuyers – it might be too early for that just yet. Consumers are still interested in seeing how far the low-interest buffet extends, with some dipping their toes into the market and making tentative enquiries.

“The market is creeping back to life, with a slow uptick in activity – long may this continue.”

In a report released earlier this week, the financial information service Moneyfacts said that average mortgage rates on two- and five-year fixed rate deals fell for a fifth consecutive month.

Between the start of December and the start of January, they dropped to 5.93 per cent and 5.55 per cent – the last time these were below 6 per cent was in June 2023.

Several lenders in the residential mortgage market have slashed rates for fixed-rate mortgage products (PA)

The average two-year fixed rate stands 0.38 per cent higher than the average five-year equivalent, Moneyfacts said, but according to some mortgage brokers, we are not far away from a two-year fixed rate mortgage below 4 per cent.

Stephen Perkins, managing director at Yellow Brick Mortgages, told The Independent: “The sub-4 per cent two-year fixed rate should be imminent. Lenders are keen to get 2024 off to a positive start towards their lending targets after a lacklustre 2023 and the markets seem confident in a base rate reduction by mid-year.

“The next inflation data could be the Rosetta Stone to unlocking two-year fixed deals starting with a [figure] three.”

It is not certain at the moment how much rates will fall and much will depend on what the Bank of England decide to do with interest rates, which are currently set at 5.25 per cent.

Further reductions in interest rates by the BoE are only likely to take place if the current inflation level of 3.9 per cent reduces further to the 2 per cent target.

Riz Malik, founder and director at R3 Mortgages, said: “There needs to be some serious evidence of inflation continuing its trajectory to 2 per cent before we see rates going much lower than what many lenders will release in the first two weeks of January. These rate cuts are great but not guaranteed indefinitely, especially given the current geopolitical backdrop.”

However, the repricing from major banks does appear to have led to a boost in the property market for people remortgaging or getting on the housing ladder.

Kylie Ann Gatecliffe, director at KAG Financial, said: “New year, new mortgage is definitely the trend we are seeing. From the minute we returned to the office in January, we have had an influx of enquiries from customers either wanting to make a property move or looking at remortgaging.

“Now rates are starting to come down and look more favourable, this has boosted confidence for customers to move forward. With rates still falling, this will hopefully keep the momentum building and get the property market back on track.”