Why mortgage rates are tumbling
Mortgage rates have been on something of a downward spiral since the end of the summer with eight lenders announcing rate cuts and fee reductions in as many weeks.
Virgin Money, Lloyds Bank, Halifax, Nationwide, Woolwich, Skipton and Satander have all reduced their rates, while HSBC has axed some of its fees (as have Halifax and Santander) and are picking up the tab for other costs associated with the home buying/remortgaging process.
David Hollingworth, the spokesperson for mortgage broker London & Country, put the rate cuts down to a combination of three factors. The first is that 'swap rates' – borrowing costs banks factor in their fixed-rate mortgage pricing – have been falling. "Swap rates are an indicator of market sentiment and in this case could be interpreted that the market is less worried about an increase in the Bank of England base rate this year.
"So to stay competitive and appeal to new customers, mortgage lenders are passing on the reduction in costs by way of lower rates," he explains.
The second is the fact that lenders have now had almost six months to get to grips with new tougher lending criteria after the introduction of the Mortgage Market Review back in March. "Some lenders were hesitant while the new rules came in but are now getting back into the normal swing of things," Hollingworth added.
The third is the fact that we're entering the autumn, one of the busiest times in the property market so lenders are cutting their rates to woo new customers. "Also, most lenders' financial years run January to December, so as we enter the final quarter of the year some lenders will be aiming to boost their lending figures by offering good deals to remortgage customers so they can write new business quickly."
Here's a look at some of the rate cuts announced:
- Virgin Money made cuts across its mortgage range including those available to customers directly for home purchases and remortgaging, as well as for buy to let loans, and deals available through brokers. For customers applying directly, it cut its fee-free two-year fixed rate at 90% loan-to-value (LTV) by 0.26% to 3.89% (no product fee) – a reduction of 0.26%. It also shaved 0.19% off its fee-free three-year fix at 90% LTV to 4.49%, and the same amount off its five-year fix at 70% LTV, taking the rate to 2.99% (a £995 product fee applies).
- Lloyds Bank has cut rates by up to 0.31%. Five-year homemover and first-time buyer mortgages at 75-80% LTV have been reduced by up to 0.31% to 3.98% with a £995 fee, or 4.18% with no fee. At 60-75% LTV, rates have been lowered by up to 0.21% to 3.78% with a £995 fee, or 3.98% fee-free. Two-year remortgage rates at 75% LTV have been trimmed by 0.1% to 2.49% with a £995 fee or 2.94% with no fee.
- Halifax has reduced its two and five-year new purchase and remortgage ranges across all LTV bands by up to 0.31%. Five-year rates at 75-80% LTV now start at 3.98% with a £995 fee or 4.18% with no fee.For remortgage customers, two-year remortgage rates have been cut by 0.10% across all LTV brands, starting at 2.49% with a £995 fee and 2.99% with no fee.
- Nationwide cut some of its most popular fixed and tracker rates by up to 0.70%, taking the starting rate for two-year fixes to 1.94%, three years to 2.39% and five years to 2.99%. And its two-year trackers now start at 1.69%.
- And existing customers who make new applications for home moves or remortgaging will secure an additional 0.10% reduction.
- Barclays (Woolwich) has cut the rates of its two, three and five-year residential fixed rates by up to 0.24% with rates of 1.94% to 3.45% available, and reduced the 70% LTV buy-to-let two-year fix by 0.30% to 2.99%. The reductions announced were the fifth in a row for the bank.
- Skipton reduced the rate on its fee-free two-year fix at 60% LTV by 0.1% to 2.49%. The 75% LTV version was cut by 0.19% to 2.34%, although this product does have a £195 application fee and £300 completion fee. Customers with a smaller deposit/equity of just 10% also stand to save, with a 0.4% reduction on the 4.29% two-year fix, which has been cut to 3.89%. A £195 application fee and £800 completion fee apply.
- Santander has cut rates for existing customers to as low as 2.15% (down from 2.39%) for a 70% LTV loan for remortgages on new purchases. Other rates include a two-year fix at 2.59% up to 80% LTV for new purchases, and a five-year at 2.99% up to 70% LTV for reemortgages and new purchases. All the deals have a booking fee of £495, a free valuation and £250 cashback for those buying a new home, and a free valuation and £250 cashback or free legals for those re-mortgaging. And Santander 1|2|3 Current Account customers who pay their Santander mortgage payment by direct debit will receive 1% cashback on maximum monthly mortgage payments of £1,000.
- Halifax remortgage customers service will now get their valuation and standard legal fees paid, and new and existing Halifax Reward Current Account and Ultimate Reward Current Account customers will also receive £150 cashback when their remortgage completes.
- Santander has a new range of mortgages available to existing current account holders which gives them £500 off its standard £995 booking fee. The bank is also offering a free valuation and £250 cashback for those buying a new home, and a free valuation and £250 cashback or free legals for those re-mortgaging. And Santander 1|2|3 Current Account customers who pay their Santander mortgage by direct debit can receive 1% cashback on repayments of up to £1,000.
- HSBC customers moving their residential mortgages to HSBC will not be charged a booking fee, standard valuation fee or completion fee and the lender will also cover standard legal fees so new customers whose old lenders don't charge exit fees (other than an early repayment charge) can remortgage to HSBC with no upfront costs.
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
Changing mortgages without moving home. Property owners chiefly remortgage to get a better deal but some do so to release equity in their homes or to finance home improvements, the costs of which are added to the new mortgage. Even though you’re not moving house, you still need to engage solicitors, conveyancing and the new lender will require the property to be surveyed and valued.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.