Two of the UK’s biggest high street lenders, HSBC and Barclays, have both announced cuts to their mortgage rates, giving homeowners and buyers a reason to be optimistic. The decision comes as new data suggests that interest rates might fall sooner than expected, following the latest inflation report.
The move follows the release of inflation figures showing that consumer prices rose by 3.8% in the 12 months to September, a figure slightly below the 4% that economists and financial analysts had forecast. The lower-than-expected reading has led markets to believe that the Bank of England may bring forward its plans to reduce the base rate.
Previously, analysts predicted that a rate cut would not happen until 2026, but with inflation showing signs of cooling, some experts now expect a reduction this year, potentially bringing the base rate down to 4%. This shift in expectations has been welcomed by mortgage borrowers, as base rate changes directly influence the cost of mortgage borrowing.
Currently, the average mortgage rate across the UK is sitting at roughly 5%, though this figure may soon fall if more lenders follow suit. Over recent weeks, rates had climbed slightly as banks took a cautious stance in anticipation of potential tax changes in the upcoming November Budget.
The good news for borrowers is that both HSBC and Barclays are responding quickly to these economic developments. Barclays, for instance, has confirmed rate reductions of up to 0.1% across some of its fixed-rate deals. Among the updated offers is a 4.01% five-year fixed mortgage that includes an £899 product fee for borrowers who can provide a 40% deposit.
The pricing of fixed-rate mortgages is largely influenced by Sonia swap rates — the interbank rates that reflect market expectations for future interest rates. These swaps have been trending downward, which signals that lenders are preparing for lower rates in the months ahead.
As of today, two-year swap rates have fallen below 3.5%, while five-year swaps currently sit at around 3.57%. These figures indicate that banks are expecting mortgage rates to move closer to those levels within the next couple of years.
Just a month ago, the market looked very different. Back then, two-year swaps were at 3.7%, and five-year swaps were slightly higher at 3.75%. The recent declines in swap rates are an encouraging sign for borrowers hoping to secure cheaper deals.
Among the most competitive options available today, Santander is offering the lowest two-year fixed rate at 3.82%, though this deal is reserved for those able to put down at least a 40% deposit. Meanwhile, First Direct has one of the lowest five-year fixed deals on the market, coming in at 3.98%, also available to those with a 40% deposit.
Experts say that these rate reductions could mark the beginning of a broader shift in the mortgage market. David Hollingworth, associate director at L&C Mortgages, commented that the latest inflation figures have provided a “positive signal” for mortgage borrowers and the wider housing market.
Hollingworth explained that September’s inflation rate holding steady and coming in below expectations suggests that price pressures are easing, which could lead to further improvements in mortgage pricing if the trend continues.
Although inflation is still nearly double the Bank of England’s 2% target, the fact that it appears to have stabilised is encouraging news. If this pattern holds, it could increase the likelihood of the Bank of England cutting rates before the end of the year, offering much-needed relief to households and buyers alike.
Hollingworth also noted that it’s highly likely other lenders will soon follow HSBC and Barclays in reducing their mortgage rates, especially as competition in the market intensifies. “Once the big players start adjusting their pricing, others usually respond quickly,” he said.
If the market continues to stabilise and investor confidence grows, homeowners could soon see a series of repricing movements across multiple lenders. This would help to bring down fixed-rate mortgage costs further, making homeownership more affordable for those who’ve been struggling with higher payments in recent months.
In the coming weeks, analysts expect more lenders to announce rate cuts, particularly if market optimism remains strong. While it’s still too early to say how far mortgage rates might fall, many in the property sector believe that the worst of the rate hikes may now be behind us.
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