TSB and Nationwide are cutting interest rates across their fixed-rate mortgage deals, underlining lenders’ appetite for new mortgage business even after sharp rises in the Bank of England’s main interest rate over recent months.
Rates on TSB’s five-year fixed rate mortgages for purchase and remortgage will fall by up to 1.3 percentage points from Monday, while Nationwide is to cut up to 0.6 percentage points from its mortgage rates from Friday.
Those looking to remortgage a loan no larger than 60 per cent of the value of their home can apply for a five-year deal with no arrangement fee at 4.99 per cent with TSB, down from the previous rate of 6.29 per cent.
Owners remortgaging with a deposit of just 10 per cent can choose a five-year fixed rate with Nationwide at 4.89 per cent (plus a £999 fee) — a rate cut of 0.55 percentage points. Those with equity of 40 per cent or more can apply for a rate of 4.43 per cent, a reduction of 0.36 percentage points on the previous offer.
Mortgage rates shot up in the market turmoil that followed the “mini” Budget in September 2022, hitting levels of more than 6 per cent by mid-October, but have subsequently eased back as lenders seek to attract more business amid a slowing housing market.
They nonetheless remain at much higher levels than a year ago. Average two-year fixed rates were 5.8 per cent at the end of 2022, according to finance site Moneyfacts, up from 2.4 per cent at the close of 2021.
The Bank of England raised the base rate last month to 3.5 per cent in its latest move to tame high inflation, and many brokers expect another rise in February. But lenders take their cue for fixed-rate pricing from swap rates, which indicate where investors think rates will settle in the longer term.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said falling five-year swap rates had given lenders confidence of a more stable climate in which to price their loans.
“We’re in the unusual situation of base rates going up while swap rates have been falling. It allows a mortgage lender to be more aggressive in their lending,” he said.
Banks and building societies often use the beginning of the year to market new deals at lower rates, to get their business off to a good start as market activity returns following the festive season.
The era of five-year mortgage rates at 1 per cent is over, Harris said, added he expects mortgage rates to settle at between 4 and 5 per cent. “I think once people get comfortable that that’s the new normal, they’ll make decisions.”
The moves come amid a slowdown in the housing market, with mortgage approvals falling 20 per cent between October and November 2022, according to the Bank of England.
Prices have risen substantially over the past three years, as the Covid pandemic encouraged moves to larger properties and those in rural areas, and the government fuelled sales with stamp duty incentives in England and Northern Ireland.
Rightmove, the property site, found average asking prices for properties listed on its website rose nationally by 8.1 per cent between January and June 2022, but fell back by 2.6 per cent between June and December.
Reviewing the locations where asking prices rose fastest in 2022, it found sellers of homes in Eastwood, Nottinghamshire — an area of mainly detached homes with good transport links — raised their prices by 29 per cent over the year. Next on the list of property hotspots were Hulme in Manchester at 26 per cent — with a preponderance of flats — and the expensive resort of Sandbanks in Dorset at 22 per cent.
Others included on the list were Heathfield in East Sussex, Chelston in Devon, St Peter’s in Kent and Cowes on the Isle of Wight.