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UK mortgage rates to fall to lowest level since Truss mini-budget

The Times - Money reporter George Nixon

Falling mortgage rates could cushion any further drop in house prices

Banks will cut mortgage rates this week to their lowest levels since September 2022’s mini-budget as fierce competition between banks looks set to drive the cost of home loans down further.

On Tuesday the Co-op Bank plan to cut mortgage rates by up to 1.26 percentage points and release a two-year fixed-rate deal at 3.85 per cent for existing customers whose fixed deals are ending. It is the first two-year fix available below 4 per cent in 15 months. It is also releasing a five-year fix at a best-buy rate of 3.84 per cent.


Last week average mortgage rates fell to their lowest levels since June 6 thanks to large cuts by some of Britain’s biggest banks.

Four of the country’s seven largest mortgage lenders slashed rates by up to 0.98 percentage points as they kicked off the new year in search of business. Other lenders including Atom Bank, First Direct, TSB and Leeds Building Society also cut their rates.

Chris Sykes, from the mortgage broker Private Finance, said he expected other big lenders including Barclays, Nationwide Building Society and Santander to follow suit this week. “The ones that have already made changes are usually the lenders which are faster to react, with others lagging behind a little,” he said. “I wouldn’t be surprised if they take positions similar to those made last week.”

The financial data analyst Moneyfacts said the average rate on a two-year fix had fallen from 6.04 per cent at the start of December to 5.83 per cent on Friday, and the average five-year fix from 5.65 per cent to 5.46 per cent.

David Hollingworth, from the broker L&C Mortgages, said: “These new lower rates should help lift some of the new year blues for borrowers coming off their existing deals.”

About 1.6 million homeowners are due to come off their existing fixed deals this year, according to the trade association UK Finance. Although they still face paying more, given that most have been on deals fixed below 2.5 per cent, these rate cuts will take away some of the shock.


Falling mortgage rates may also cushion any further fall in house prices, which have shown signs of recovery. Britain’s largest mortgage lender, Halifax, said that house prices rose by 1.1 per cent in December compared with the same month the year before, and have risen for three consecutive months.

The Bank of England also said that mortgage approvals for new house purchases had risen for the third straight month in November, to 50,067 — up from 47,888 in October — as the reduction in mortgage rates since last September tempted more buyers.

Steve Moses, from the broker Mortgage Studio, said: “We’re seeing more enquiries from first-time buyers, and home movers are also coming back to the market.”

A lower-than-expected fall in house prices has meant that banks have needed to cut mortgage rates by more so buyers can afford to buy property. With the mortgage market smaller than before interest rates started rising in December 2021, banks need to fight harder for business.

Rates have also been falling as there are expectations that the Bank of England base rate, now 5.25 per cent, will soon be cut because of a rapid fall in the rate of inflation, to 3.9 per cent in November.

However, loan rates are not expected to fall too much further because they are now not far off the future expectations of the Bank of England base rate lenders use to price their fixed-rate deals.


There are also concerns that ongoing shipping attacks in the Red Sea could lead to an increase in the rate of inflation because of disruption to food imports. Financial markets have already slightly tempered how far they expect interest rates to fall.


Sykes said: “I don’t think we’ll get an awful lot lower than where rates already are.”

Investment Synergy - a little snip here... a little snip there helps steady the market and ease financial pressure for the home owners, however - it´s interesting to note that the banks can react, come what may, if a loss of business and profits are impacted !


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