Nationwide has cut interest rates for first-time buyers this week, while Barclays moved in the opposite direction, as mortgage experts predict a spring mortgage price war is simmering.
The average rate for a two-year fixed mortgage came in at 4.53% this week, unchanged from the previous week, according to data from Uswitch.
The average five-year fixed deal came in at 4.94%, also unchanged. These are the average rates across all lenders for a 75% loan-to-value (LTV) mortgage, meaning buyers need a down payment of at least 25% of the purchase price.
The Bank of England has left interest rates on hold at 3.75% as expected this month, but a slowdown in inflation has raised expectations of an interest rate cut next month, offering relief to more than 1m homeowners on tracker mortgages.
Data published on Wednesday by the Office for National Statistics showed consumer prices rose 3% in the year to January, down from 3.4% in December. It marks the lowest reading for the consumer price index since March last year.
Financial markets are pricing in a 0.25 percentage point reduction in the Bank of England’s base rate to 3.5% at its meeting on 19 March.
Such a move would deliver an immediate reduction in borrowing costs for households on tracker mortgages, whose variable rates move in line with the base rate.
Mortgage brokers said expectations of looser monetary policy were also likely to feed through to fixed-rate products, potentially lowering deals for prospective buyers and for the 1.8 million households whose fixed-rate mortgages are due to expire this year.
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Chris Storey, chief commercial officer at Atom bank, said: “The [latest] inflation data has poured fuel on a housing market that was already shifting into top gear. With inflation falling to 3%, the starting gun has officially been fired for a potential spring mortgage price war.”
“Speed has rarely been more important. Not only has the ONS reported a rise in house prices, but we’re seeing the average price tag push through the £300,000 barrier for the first time, according to Halifax. We face the prospect of buyers racing to lock in deals before further price growth erodes the benefits of the now widely expected base rate cut next month.”
Martin Sims, distribution director at Molo Finance added: “A further step down in inflation towards 2% strengthens the case for at least one more Base Rate cut this year, which would be positive news for landlords and residential buyers, and provide a renewed boost of confidence to the property market.”
Nationwide appears to be positioning itself for this mortgage price war, having cut its two-year fix, while Barclays (BARC.L) increased costs for first-time buyers on its cheapest deals. All other major lenders appear to be in a wait-and-see approach.
Here’s more detail on major lenders’ mortgage rates this week:
HSBC (HSBA.L) has a 3.76% rate for a two-year deal, with a £999 booking fee, which is unchanged from the previous week. For those with a premier standard account with the lender, this rate is 3.73%.
Looking at the five-year options, the fixed standard rate is 3.88% with a £999 fee, which is also unchanged.
Both cases assume a 60% LTV mortgage, meaning buyers need a deposit of at least 40%.
HSBC (HSBA.L) offers 95% LTV deals, so you only need to save for a 5% deposit. However, the rates are much higher, with a two-year fix at 4.74% or a five-year fix at 4.79%.
This is because someone’s financial situation and deposit size determine the rate. The larger the deposit, the lower the LTV, allowing buyers to access better deals because lenders consider them less risky.
Read more: UK house prices rose by 2.4% in December
The lender has recently unveiled a cashback offer of up to £2,000 to ease the upfront costs of entering the housing market.
The bank’s enhanced incentive package, which brokers say could ignite a fresh round of competitive pricing among high-street lenders, marks one of the most generous cashback schemes currently available. The measure is aimed at supporting borrowers struggling with deposit and moving costs at a time when affordability pressures remain high despite a recent easing in mortgage rates.
NatWest’s (NWG.L) two-year deal has come in at 3.70%, with a £1,495 product fee, a figure unchanged from last week’s offer.
The cheapest five-year fixed deal is 3.85%, also unchanged from last week’s deal. In both cases, you’ll need a deposit of at least 40% to qualify for the rates.
Barclays (BARC.L) has a two-year fix available at 3.70% with a £899 product fee, up from last week’s 3.65%.
Its five-year deal also jumped, coming in now at 4% from last week’s 3.90%.
Barclays (BARC.L) launched 95% loan-to-value (LTV) mortgages for purchasers of new-build houses, in a move aimed at easing the path to home ownership, especially for first-time buyers.
The offer applies to new-build houses with a maximum purchase price of £600,000. Previously, buyers were required to pay a 10% deposit, meaning a £60,000 deposit on a £600,000 property. Under the new criteria, that requirement could be halved to £30,000.
Earlier in the year, Barclays (BARC.L) launched a mortgage proposition to help new and existing customers access larger loans when purchasing a home.
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The initiative, known as Mortgage Boost, enables family members or friends to effectively “boost” the amount that can be borrowed toward a property without needing to lend or gift money directly or provide a larger deposit.
Under the scheme, a borrower’s eligibility for a mortgage can increase significantly by including a family member or friend on the application. For example, Barclays (BARC.L) stated that an individual with a £37,500 annual income and a £30,000 deposit could borrow up to £168,375, meaning the most they could afford would be a home worth £207,375.
However, with Mortgage Boost, the total borrowing potential can increase if a second person, such as a parent, is added to the application. In this case, if the second applicant also earns £37,500 a year, the combined income could push the borrowing limit to £270,000, enabling the buyer to afford a home worth up to £300,000.
Nationwide (NBS.L) has dropped its two-year deal from 3.82% to 3.67% this week for first-time buyers. For a five-year deal the rate is 4.16%, unchanged. Both deals require a 40% deposit and come with a £999 upfront fee.
First-time buyers also receive £500 cashback when they complete their mortgage with Nationwide (NBS.L).
The lender this week announced an expansion of its high loan-to-income (LTI) lending, a change that could see some borrowers access tens of thousands of pounds more than previously available.
Under the new terms, home movers and customers remortgaging will now be able to borrow up to six times their annual income. This enhanced offering extends to both new and existing customers moving home or remortgaging, and applies to loans with a loan-to-value (LTV) up to 95%.
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To qualify for this increased borrowing, sole applicants must demonstrate a minimum annual income of £75,000, while joint applicants must demonstrate a minimum yearly income of £100,000. These income thresholds remain consistent with previous requirements, which allowed eligible groups to borrow up to 5.5 times their income.
The changes mean that, for example, a sole applicant who was a new customer moving home or remortgaging, with an income of £75,000, may previously have been able to borrow up to £412,500 from Nationwide (NBS.L). But now they could potentially borrow up to £450,000 — an increase of £37,500.
Nationwide (NBS.L) has also become the first lender to allow a mortgage deed to be signed electronically and without the need for a witness in a “significant step” for the market.
Anyone purchasing a property or looking to remortgage with Nationwide (NBS.L) will be able to sign their mortgage deed electronically if their solicitor is set up to use a Qualified Electronic Signature.
Halifax, the UK’s largest mortgage lender, offers a two-year fix at 3.91% (also 60% LTV), which is more than last week’s 3.72%.
The lender, owned by Lloyds (LLOY.L), also offers a five-year rate of 4.02%, also higher than last week’s 3.88%.
It has a 10-year deal with a mortgage rate of 4.87%.
Santander (BNC.L) withdrew its 60% LTV mortgage products for first-time buyers on borrowing of less than £250,000 on two- and five-year terms on 19 September.
A spokesperson for the bank said that the “change was part of a reprice following the changes to swaps after the Bank of England held interest rates”.
Santander (BNC.L) continues to offer products with LTVs of 85% or above for first-time buyers, with the cheapest two-year fix at 3.92% and the cheapest five-year fix at 4.09%.
For home movers with a 40% deposit, Santander (BNC.L) is now offering a two-year fixed rate of 3.51% and a five-year deal of 3.80%, a hike from the previous 3.73% deal.
The lender has launched a mortgage that lets first-time buyers borrow up to 98% of the property’s value.
The deal does require a minimum £10,000 deposit, though, so borrowers would need to be purchasing a home for £500,000 to have put down a deposit as low as 2%.
Read more: Six common remortgaging mistakes to avoid
Santander UK (BNC.L) said its “my first mortgage” deal has a fixed rate of 5.19% over five years and has no product fee.
The product, with up to 98% loan-to-value (LTV), is available for maximum lending of up to £500,000, repayable over a term of 5-40 years.
The deal is not available to self-employed applicants and covers only applicants living in Britain, with Northern Ireland excluded, Santander (BNC.L) said.
It is available for a minimum of £190,001 being borrowed, and £250 cashback is payable on completion.
Lending above 95% and up to 98% is available on existing houses only, Santander (BNC.L) said.
All lending also remains subject to Santander’s (BNC.L) broader affordability checks, including a maximum loan-to-income multiple of 4.45 times salary.
Nationwide offers the most competitive two-year deal on the market for first-time buyers, with a fixed rate of 3.67%. When it comes to a five-year fixed deal, NatWest (NWG.L) takes the crown, with its 3.85% offer. However, any of these deals requires a hefty 40% deposit.
With the average UK house price at £297,755 in December, prospective homebuyers would need a deposit of around £120,000 to secure the cheapest rates.
A growing number of homeowners in the UK are opting for mortgage terms of 35 years or longer, with a significant rise in older borrowers stretching their repayment periods well into their 70s.
Skipton Building Society is allowing first-time buyers to borrow up to 5.5 times their income, helping more borrowers get on the housing ladder.
Leeds Building Society reduced the minimum household income requirement on its first-time-buyer mortgage range. This means single or joint first-time buyer applicants with a household income of £30,000 may now be able to borrow up to 5.5 times their earnings.
Mortgage holders and borrowers have faced higher repayments in recent years, as the BoE’s higher base rate has been passed on by banks and building societies.
Many homeowners will hope the Bank of England continues to cut interest rates. At the same time, savers will likely root for rates to remain at or near their current levels.
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