TSB, Accord, and NatWest are among the lenders cutting fixed rates again, it has emerged today. Meanwhile Barclays is launching a competitive two-year tracker at 3.96% to attract the growing number of borrowers considering variable rates.
Last week saw many of the big lenders make generous reductions to their mortgage pricing following a spate of significant price hikes.
It means the average two-year fixed rate mortgage is currently 5.81% according to Moneyfacts. This compares to the high of 5.90% reached on 12 April.
For a five-year fixed rate, borrowers are typically seeing 5.71%, which compares to 5.78% on 12 April.
But with experts predicting there’s a chance interest rates might rise tomorrow when the Bank of England (BoE) decision makers release their next rate setting announcement, it’s still unclear for borrowers which way prices are heading.
According to Aaron Strutt, product and communications director at Trinity Financial, warned those about to take out a deal not to wait around in the hope of more cuts.
“While it is great to see rates come down again, fixed rate price hikes over the coming weeks can’t be ruled out,” he said.
“When the cost of funding mortgages increases, the lenders typically do not wait long to pass those rises on to borrowers.
“The standard advice in uncertain economic times stands, secure a mortgage rate you think suits your circumstances or looks reasonable value for money as soon as you can, then try to switch to a cheaper deal with the lender before your mortgage is due to complete.”
What will happen to interest rates tomorrow?
According to investment platform, AJ Bell, on Monday the markets had priced a 17% chance of interest rates being hiked tomorrow.
The general consensus, however, is that the decision makers, the Monetary Policy Committee (MPC), are most likely to hold interest rates at 3.75% – but it will be a close call, with a large minority of the nine-member group opting for the hike.
Nicholas Mendes, mortgage technical manager at John Charcol, thinks it is the division of voting which borrowers should be looking out for tomorrow as this will be the indicator of what might happen to mortgage rates going forward.
“A split vote looks likely,” he said, “and in some ways the vote split may matter almost as much as the headline decision itself.”
This is because, he explained, markets – as we’ve mentioned – are already pricing in a higher rate environment. This is impacting Swap rates, which lenders use to set pricing, and these are looking likely to rise over the coming months.
Mendes said this suggests markets are not treating current rates as the end point.
He added: “The questions now are when any increase comes, how high Bank Rate ultimately needs to go, and how quickly the Bank feels it needs to act.
“My view is that a rise this week should not be ruled out. If the MPC accepts that rates are likely to have to move higher, there is a case for acting now rather than waiting until the next meeting on 18 June.”
Taking out a mortgage? Here’s what to do…
Like Strutt, Mendes is not predicting more mortgage rate cuts. If any do come he expects them to be ‘patchy’ rather than ‘broad’.
Indeed, even if the Bank of England holds rates tomorrow, he warned borrowers not to read this as a clear signal mortgage rates will fall. His advice is not to wait for a signal from the Bank of England.
“Fixed mortgage rates are driven more by swap rates and wider funding expectations than by the base rate alone,” he said.
“With swaps still elevated, even a hold this week would not automatically give lenders the confidence to cut across the board.
“Those approaching the end of a fixed deal should look early, secure a rate where possible, and keep it under review.
“In this kind of market, the better approach is often to lock in an affordable option and then switch if pricing improves before completion, rather than sit on the sidelines hoping the next decision makes things clearer.”