Experts weigh in on lenders reducing their rates
With violent riots currently engulfing parts of the UK, fuelled by extremists, war metaphors may seem unsettling. But in the mortgage world, rate wars – as they are often described - are a sign of an increasingly competitive, arguably more confident market, after a bruising few years for the industry.
Since the Bank of England’s Monetary Policy Committee’s decision last week to cut the base rate for the first time in four years, from 5.25% to 5.0%, there’s been compelling evidence of lenders ramping up their rate reductions, while clearly scrutinising what their rivals are doing.
Over recent days we’ve seen a tussle between the giants HSBC, Barclays, NatWest and Nationwide to be top dog, not to mention some market posturing from the smaller brands, who can certainly punch above their weight when it comes to grabbing the attention of borrowers.
“All the lenders are fighting for the number one spot on the leader board when it comes to the lowest 60% loan to value rates,” commented mortgage broker and protection specialist, Ken James (pictured left), from Contractor Mortgage Services. “Sub 4% rates are now starting to appear thick and fast.
“First, there was NatWest’s direct to lender offering of 3.97%, then HSBC have moved ahead - just - with their 3.92% rate, but we have now seen Barclays want to take the lead with a 3.84% rate announced. Whilst these deals won’t help everyone, as you require a 40% deposit, it does lead the way for rates in the higher loan-to-value brackets to reduce. We can hope to move away from 5%-plus rates for clients.”
James added: “We are seeing more enquiries from new clients, along with our existing ones looking to secure more competitive rates as they head towards the end of their current deals - all in all, a very promising last quarter ahead of us.”
Rate changes have become more newsworthy in recent years, according to Serena Smith (pictured second from left), a mortgage and protection specialist at Mortgages with Serena. The increasing attention creates further intrigue, she believes.
“Rate wars are my favourite type of wars!” Smith quipped. “Let’s be honest, lenders know they haven’t hit their targets this year, so they will need to drop rates to spike activity. It’s a struggle to keep up with the repricing of rates currently, and as a further BoE rate cut is predicted, together with swap rates reducing, it looks like we could be seeing further interest rate reductions.”
What will mortgage lenders do next?
Gerard Boon (pictured centre), managing director at Boon Brokers, believes that while the base rate reduction will result in a rate war between mortgage lenders in the short-term, they will remain cautious overall.
“We’re unlikely to see a significant reduction in interest rates until inflation remains at the Bank of England’s target of 2% for a sustained period,” Boon suggested. “Until then, mortgage lenders will be concerned that inflation may rise again as a result of the first base rate cut.”
Boon shared that his firm was generally recommending mortgage products with shorter product term periods, such as two-year instead of five-year fixed deals.
“Clients will hopefully be able to refinance at the earliest opportunity to a more cost-effective product,” he noted. “Many clients are opting for products with no or low early repayment charges if their existing products are set to expire within the next six months. As the products have no early repayment charges, they can then refinance to lower-cost products as interest rates improve in the market.”
Read more: Have mortgage brokers seen a boost to business since the base rate cut?
How long will the mortgage rate war last?
There was a warning from Gindy Mathoon (pictured second from right), a mortgage and protection adviser at Create Finance, that rate reductions could be short-lived.
“Worldwide factors could ultimately mean that the reduction in rates aren’t around forever,” Mathoon reasoned. “Borrowers coming off fixed rates in the next six months should seek to reserve a rate now and ask their broker to proactively review the rate until the current deal ends, ensuring the borrower benefits from any further rate reduction. A broker finds out the new rates before they go live, consumers don't. Often, a mortgage broker’s fee is worth it for this task alone.”
Meanwhile, David Hollingworth (pictured right), associate director of communications at mortgage broker L&C Mortgages, noted that the frequency of lender changes had intensified.
“The ongoing battles have perhaps stepped up a gear as the market expectation after the base rate cut last week has seen swap rates drop,” he said. “The level of competition is so high that it’s taken no time to feed through into the rates on offer, with more significant cuts being made, driving the lowest rates lower than we have seen for many months.
“I do expect that more will naturally follow, so brokers will have to keep working hard to stay abreast of changes. There’s likely to be more reworking of cases to help customers revisit their chosen rate and take advantage of any new, lower rates.”
