HSBC has announced cuts to its mortgage interest rates, joining Barclays and NatWest in a move that follows hints from the Bank of England about the possibility of a key interest rate cut over the summer.
Barclays cut fixed-rate home loan costs for new deals on Tuesday, with HSBC’s cuts due to take effect on Wednesday. Mortgage brokers expect more lenders will follow suit.
Despite these reductions, the overall impact remains modest. Borrowers still face relatively high costs, with many expecting to see significant increases in their monthly repayments once their current, cheaper deals end.
Mortgage rates have been rising, partly due to reduced competition among lenders during the election campaign. According to Moneyfacts, the average two-year fixed mortgage rate is 5.96%, while the average five-year deal rate is 5.53%.
“These moves suggest that the recent rise in interest rates is now starting to ease and most cuts are being made in small steps,” said David Hollingsworth of brokerage L&C.
Fixed mortgage rates remain unchanged until the deal expires, usually after two or five years, requiring borrowers to choose a new rate. If they do nothing, they revert to a variable rate, which can be very expensive.
This year, about 1.6 million existing borrowers will see their relatively cheap fixed-rate deals expire.
While spring typically brings more activity in the housing market, uncertainty over political outcomes may have dampened this trend.
Borrowers are also closely monitoring the Bank of England’s Monetary Policy Committee, which will decide on interest rates at its next meeting on August 1. Recent signals from the Monetary Policy Committee suggest that a majority may support a rate cut.
Optimism about this potential outcome may be driving recent interest rate cuts by major lenders, who are also keen to attract more customers.
“Lenders will be keen to revive a market that has been dormant due to elections, hot weather and football,” said Andrew Montlake of real estate broker Korico. “The country urgently needs to step up the reduction to relieve some of the financial pressures that have hampered the economy and put borrowers under enormous pressure.”
However, Montlake warned that the recent positive news on lower inflation may be temporary, which could prompt the bank to take more cautious action.
Michelle Lawson of Lawson Financial noted that while borrowers are “locked in”, more lenders may cut interest rates in the coming days.
In addition, figures from UK Finance, which represents lenders, show a further decline in the number of people paying only interest on their home loans, despite the difficult circumstances faced by borrowers.