Why we need to watch what this one lender does…
On Tuesday morning, both Barclays and TSB announced reductions in their mortgage rates, sparking speculation that further cuts could follow before the year’s end. Barclays reduced rates on several fixed-rate mortgage deals, including its lowest rate – a five-year plan for buyers with a 40% deposit – now set at 4.11%. Meanwhile, TSB has lowered rates on various products, with reductions of up to 0.25 percentage points on its five-year fixed deals.
Barclays and TSB weren’t the only mortgage lenders giving their clients an early Christmas bonus - smaller lenders, such as Skipton Building Society and Fleet Mortgages, also cut their rates earlier this week. This marks the second time in two weeks that Barclays has lowered its rates, following a period of rising costs across the market following the Labour government’s budget which announced massive borrowing.
The good news is that industry experts anticipate that more lenders will reduce rates before the end of the year, although they caution that this does not signal a full-scale “price war”. Mortgage rates remain higher than those seen in the autumn, when deals below 4% were available for some borrowers.
Read more: Four interest rate cuts in 2025 says Bank of England boss
“Hopefully this drags more competition and more lenders will follow suit and cut rates,” Lyle Campbell, from Brokers Mortgage Hub, told Mortgage Introducer. “And that that can only be a good thing for borrowers, which in turn is a good thing for us brokers.” Campbell believes that Halifax is the rates canary in the coal mine – “I think that the catalyst for it is always, whatever Halifax tend to do, the rest will follow, just because Halifax is the biggest lender by some way. If they make moves, the rest almost have to keep up. It’s a good sign certainly for the market with rates coming back down after the little blip of the last few weeks - so long may it continue as far as that's concerned.”
Swap rates and end of year targets could help drive cuts
Mortgage rates have been climbing in recent months, largely due to the Autumn Budget’s effect on swap rates. Swap rates, which reflect market expectations of future Bank of England base rate movements, rose sharply following the Budget. Economists predicted a slower pace of interest rate cuts, with October’s Budget suggesting inflation could peak higher than anticipated.
These rising swap rates have significantly influenced fixed mortgage pricing, driving rates upwards across the board. However, as swap rates have begun to ease, several lenders have started to cut their rates. Recent reductions have come from major players such as NatWest and HSBC last week, and Barclays the week before.
“So basically, swap rate borrowing rates have come down now,” explains Broker of the Year Gindy Mathoon from Create Finance, who also points out that end of year targets may help the downward pressure on mortgage interest rates. “As soon as swap rates come down, that obviously makes funding a lot safer for lenders. So essentially now what lenders are keen to do is pass on the cheaper funding to borrowers. Possibly lenders have got targets to hit and you can say, obviously, this year has been quite volatile, so at times probably lenders haven't hit the targets that they want to hit.”
HSBC was the first of the so-called “big six” lenders to lower its mortgage rates earlier this autumn, paving the way for further competitive adjustments. While more reductions are expected, experts suggest the market will likely remain cautious as we head into the new year.
