BRITAIN’S biggest banks have launched a new mortgage price war battle.
Barclays and HSBC are slashing rates for the second time in two weeks.
Starting Friday, Barclays will lower its two and five-year fixed mortgage deals by up to 0.27%.
A fixed-rate mortgage is a deal in which you agree to an interest rate with the lender and pay the same one for the duration of the deal.
HSBC is expected to reveal the full details of its rate cuts on the same day.
Both banks already cut their rates last week.
But other major lenders have also joined the party.
Halifax cut its rates by 0.19 percentage points on Wednesday after an earlier cut of 0.23% this week.
Santander followed suit with reductions of up to 0.16% today.
Nicholas Mendes, mortgage technical manager at John Charcol, said: “Since the general election was called, the swaps market has seen only marginal decreases, but a dip in activity has occurred as prospective buyers wait in hopes of new government incentives like increased stamp duty thresholds or more options for first-time buyers.
Swap rates, which underpin fixed-rate mortgages, have been fluctuating in recent months leading lenders to adjust their rates.
Lenders are also anticipating a Bank of England rate cut this summer, so have started to reduce rates in anticipation.
High street banks and lenders use the BoE base rate to set their own interest rates on mortgages, loans and savings accounts.
If it comes down, interest rates on mortgages, loans and savings accounts tend to fall too.
According to Nicholas, falling swap rates and a dip in demand have meant lenders are now trying to compensate for lost time.
He added: “Lenders have held rates longer than preferred and are now repricing as the election concludes.”
“Despite the absence of a bank rate decrease, the margin exists to allow for reductions.
“We can expect about two weeks of repricing before a pause as lenders adjust their margins to suitable levels.”
Mortgage lenders also tend to bring down rates in anticipation of the base rate falling.
Markets expect the Bank of England (BoE) to cut its base rate in August this year after policymakers kept it at 5.25% last month.
However, mortgage rates remain relatively high for millions of borrowers after successive BoE base rate hikes.
Moneyfacts said the average rate on a two-year fixed deal stands at 5.96%, while the average five-year deal has a rate of 5.53%.
HERE we take you through the pros and cons of a fixed mortgage deal.
Pros
Cons
Snapping up the best mortgage deal depends on what’s available at the time, but there are ways to get ahead of the competition.
Usually the larger the deposit you have the lower the interest rate you can get.
If you’re remortgaging and your loan-to-value ratio has changed, this could also give you access to better rates than before.
A change to your credit score, or an increase in your salary can also help you access better rates.
If you have a fixed rate, you could see higher rates when you come to the end of the current term after the BoE hiked interest rates from 2022 and into last year.
And if you’re nearing the end of a fixed deal in the next six months it’s worth contacting your broker now to lock in a rate.
If they come down between now and the end of your deal, you can always apply for another rate before you remortgage.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it might be worth paying to leave the deal. Make sure you compare costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare for you, with most offering free advice to secure you the best deal for you.
Some brokers charge for advice, so ask them first.
It could cost a couple of hundred pounds but it might save you thousands on your mortgage overall.
You’ll also need to factor in fees for the mortgage, though some have none at all, or you can add it to the cost of the mortgage.
But, be aware that this means you’ll pay interest on it and it will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember, if you decide to remortgage to a new lender you’ll have to pass its affordability checks.
It may also check your credit file to check you have repaid previous debts.
You may also need to provide documents such as utility bills, proof of benefits, your last three months’ payslips, passports and bank statements.
It’s possible to avoid new affordability checks by remortgaging to a new deal with your existing lender, provided you don’t want to borrow more or extend your term.
