Big banks put pressure on the rivals with headline grabbing sub 4% rates
No sooner than HSBC, the UK’s sixth largest mortgage lender, had introduced a new mortgage deal with a sub 4% fixed mortgage interest rate earlier today, Barclays has retaliated with an even lower rate - both besting recent offers from NatWest and Nationwide.
Priced at 3.95%, HSBC’s five-year fixed-rate mortgage is currently the lowest on the market. But that record is about to fall as Barclays has fired a broadside at its would be market share grabbing competitor, and has announced a rate cut substantially below HSBC’s.
Earlier today, Nicholas Mendes of broker John Charcol told Forbes: “This puts HSBC in a prime position in the market. Next, we expect similar moves from Santander, Halifax, and Barclays. August has started with strong competitive momentum.” True to his prediction, Barclays is first out of the blocks with a riposte to the global bank.
The HSBC mortgage requires a significant deposit and a booking fee, but some borrowers can also benefit from cashback upon completion. To access the 3.95% rate, first-time buyers need a 40% deposit (60% loan-to-value) and must pay a £999 fee. They will receive £350 cashback. First-time buyers eligible for HSBC’s Energy Efficient Homes (EEH) mortgage, with the same deposit and fee, will receive £1,600 cashback. For home movers with a 60% deposit, the fee remains £999, but no cashback is offered on standard mortgages. However, EEH deals with these terms offer £1,250 cashback. Existing customers borrowing more or switching loans with a 60% deposit will pay the £999 fee but do not receive cashback.
Barclays’ competitive struggles and strategic moves
Meanwhile, Barclays, facing mounting pressure from HSBC and other competitors, is grappling with a decline in its mortgage business. The bank’s interim results for the first half of 2024 revealed a drop in UK mortgage balances from £163.6 billion to £161.1 billion year-over-year. Despite attempts to cut interest rates to retain market share, Barclays’ gross lending flow for mortgages fell to £9.2 billion from £12.2 billion.
Barclays has undertaken strategic initiatives to stabilise its finances and streamline operations. These include the sale of its €5.3 billion Italian mortgage book, which, although resulting in a €260 million loss, aligns with the bank’s efforts to optimise its lending portfolio. Additionally, the acquisition of Tesco Bank’s retail banking business, expected to complete in November 2024, aims to bolster Barclays’ market position by adding approximately £400 million in annualised net interest income.
Despite these challenges, Barclays managed to achieve significant efficiency gains, realising £0.4 billion in cost savings in the first half of 2024. The bank’s credit impairment charges also saw a notable reduction, reflecting improved macroeconomic conditions.
Barclays’ new offer is just 3.84% for loans from £5,000 - £2m with an HSBC-beating product fee of £899.
Barclays’ new mortgage rates
Barclays will implement changes to its mortgage rates starting tomorrow, August 8. Key adjustments include reductions in its residential purchase range:
- A 5-year fixed-rate mortgage with a £899 product fee and a 60% loan-to-value (LTV) will decrease from 4.04% to 3.84% for loans between £5,000 and £2 million.
- A two-year fixed-rate mortgage with no product fee and a 60% LTV will drop from 4.61% to 4.43%.
- Another two-year fixed-rate mortgage with a £899 product fee and a 60% LTV will reduce from 4.42% to 4.22%.
In the remortgage product range:
- A five-year fixed-rate mortgage with a £999 product fee and a 60% LTV will decrease from 4.26% to 4.06%.
- A five-year fixed-rate mortgage with a £999 product fee and a 75% LTV will see a reduction from 4.40% to 4.20%.
- A two-year fixed-rate mortgage with a £999 product fee and a 60% LTV will drop from 4.60% to 4.40%.
NatWest’s competitive mortgage offer
In a parallel move, NatWest has launched a sub-4% fixed-rate mortgage for customers who bypass brokers and go directly to the bank. The 3.97% deal, which has faced criticism for trying to get clients to forgo an intermediary’s advice for an attention-grabbing rate, is available exclusively online, requires a 40% deposit (60% LTV) and a £1,495 fee, though NatWest covers the valuation fee. Exiting the NatWest deal early incurs an early repayment charge of 4.5% in the first year, 4.25% in the second year, 4% in the third year, 2.5% in the fourth year, and 1% in the final year. After the deal ends, those who do not remortgage will revert to NatWest’s standard variable rate of 8.24%.
The broader mortgage market context
HSBC’s aggressive rate-cutting strategy has allowed it to grow its market share to 8.1%, up by 0.3 percentage points from the previous year. This growth is part of a broader effort to attract new mortgage customers despite higher interest rates and market volatility. The bank’s focus on maintaining competitive mortgage products and efficient customer service has paid off, resulting in steady growth and market share gains. Looking ahead, HSBC expects continued growth in its mortgage sector, driven by stable demand for home loans and favourable market conditions, potentially bolstered further by anticipated cuts in interest rates by the Bank of England.
As HSBC and other lenders like NatWest and Nationwide continue to introduce competitive mortgage products, Barclays’ ability to maintain its market position remains under scrutiny. Tomorrow’s cut is clearly an attempt to stop the loss of market share as home buyer interest increases.
In any event, all this competition benefits intermediaries and borrowers through more attractive mortgage deals.
