UK mortgage market stalls as interest rates held at 4%

UK mortgage deals have been adjusted as the Bank of England (BoE) unsurprisingly decided to leave interest rates unchanged. Most lenders kept their offers steady, but two moved in opposite directions — Santander (BNC.L) raised its rates, while Nationwide (NBS.L) made cuts.

The average rate for a two-year fixed mortgage rose to 4.75% this week, while the average five-year fixed deal came in at 4.95%, according to data from Uswitch.

This week, Santander (BNC.L) increased its five-year cheapest deal, while Nationwide (NBS.L) moved in the opposite direction, cutting its best two-year fix even further. All other major lenders left their mortgage rates unchanged.

The BoE opted to hold interest rates steady at 4% on Thursday, defying hopes for further monetary easing this year and dealing a blow to mortgage holders and borrowers across the UK.

The primary inflation measure, the consumer price index (CPI), rose to 3.8% in the 12 months to August, steady from July but well above the BoE’s 2% target.

Fergus Allen, head of bridging at Clifton Private Finance, said: “For homebuyers hoping for further rate cuts by year-end, this may come as a blow. It’s likely lenders will hold firm on current mortgage rates, meaning those coming to the end of a fixed term or looking to buy for the first time could face higher monthly repayments, reduced affordability, and fewer products to choose from.”

“Expats looking to return to the UK may also feel the pinch. Mortgage approvals can already be challenging for expats without a recent UK address or credit history, and with rates remaining high, lending criteria may become even more stringent.”

“As well as this, those relying on bridging finance to purchase a home may feel the impact of rates being held at 4%. These loans can be a useful option when funds are needed quickly, such as when buying a property before selling another. However, with higher interest rates, they become more expensive and can cause problems if a sale is delayed or there is no clear exit strategy in place. That’s why, in the current market, it is vital to seek expert advice and ensure your repayment plan is realistic before proceeding with a bridging loan.”

Read more: Bank of England holds interest rates at 4%

Meanwhile, homeowners on interest-only mortgage deals could see their monthly repayments soar by a staggering £788 as historically low fixed rates come to an end, Lloyds has warned.

For those with interest-only loans, the shift from low fixed rates to a lender’s standard variable rate (SVR) could have a serious impact. In late 2020, borrowers securing five-year fixed-rate mortgages at 2.4% would have had monthly payments of just £420. But with these deals set to mature, many will be moved to SVRs, where the average rate has now climbed to 6.9%.

Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said: “Anyone coming off an old deal would be wise to lock in a new product rapidly rather than wait for borrowing conditions to ease further.”

“Mortgage rates have fluctuated in recent weeks amid uncertainty around the future path of interest rate cuts.”

“That volatility may continue, particularly in the run-up to the Budget, as policymakers will be keen to assess the impact of any new tax measures the Chancellor will roll out.”

On a typical £177,000 interest-only mortgage, that rise could push monthly payments up to £1,208, an increase of £788. For many, this spike in costs could mean major financial strain, particularly if they haven’t anticipated the change.

Lloyds is urging borrowers nearing the end of their fixed deals to act quickly in order to avoid being caught out by the sharp rise in repayments.

Andrew Asaam, mortgage director at Lloyds, said: “Many homeowners with interest-only loans are facing a massive increase in their monthly payments once their fixed rates expire. It’s crucial for borrowers to take action now to avoid this jump and keep their monthly costs manageable.”

“Switching lenders has never been easier, and competitive remortgage deals can make a significant difference in reducing that financial strain. It’s worth considering your options now to ensure that your payments don’t rise more than necessary.”

HSBC mortgage deals

HSBC (HSBA.L) has a 4.04% rate for a five-year deal, unchanged from last week. For those with a Premier Standard account with the lender, this rate is 4.01%.

Looking at the two-year options, the fixed standard rate is 3.89% with a £999 fee, also unchanged from before.

Both cases assume a 60% loan-to-value (LTV) mortgage, meaning buyers need to have at least 40% for a deposit.

HSBC (HSBA.L) offers 95% LTV deals, meaning you only need to save for a 5% deposit. However, the rates are much higher, with a two-year fix at 5.05% or 4.89% for a five-year fix.

This is because their financial situation and deposit size determine the rate someone can get. The larger the deposit, the lower the LTV, allowing buyers to access better deals because lenders consider them less risky.

NatWest mortgage deals

NatWest’s (NWG.L) five-year deal is 3.94% with a £1,495 fee, which is the same as before.

Read more: UK house prices climb £8k in July

The cheapest two-year fixed deal is 3.88%, unchanged from the previous week. In both cases, you’ll need at least a 40% deposit to qualify for the rates.

Santander mortgage deals

At Santander (BNC.L), a five-year fix is 4.13% for first-time buyers, higher than the previous 4.09%. It has a £999 fee, assuming a 40% deposit.

For a two-year deal, customers can secure a 3.94% offer, with the same £999 fee, unchanged from before.

The lender also increased some of its other deals for first-time buyers. All 75%—95% LTV 2-year fixed rates increased by up to 0.11%; all 60%—95% LTV 3 and 5-year fixed rates increased by up to 0.12%; and all 60%—75% LTV 10-year fixed rates increased by up to 0.11%.

Barclays mortgage deals

Barclays (BARC.L) has left its five-year fix at 4.11%, with a £899 product fee. A two-year fix comes in at 3.92% with a £899 product fee, also untouched from the previous week.

Barclays (BARC.L) has launched a mortgage proposition to help new and existing customers access larger loans when purchasing a home. 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, an individual with a £37,500 annual income and a £30,000 deposit might traditionally be able to borrow up to £168,375, enabling them to purchase a home priced at around £198,375.

However, with Mortgage Boost, the total borrowing potential can rise if a second person, such as a parent, joins 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 mortgage deals

Nationwide’s (NBS.L) lowest mortgage rate for first-time buyers at a five-year fix is 4.22%, unchanged from before. First-time buyers are looking at 3.99% for a two-year fix, which is a drop from the 4.03% on the table last week. Both deals require a 40% deposit and come with a £1,499 upfront fee.

Eligible first-time buyers can apply for a mortgage with a £30,000 salary, down from £35,000, and joint applicants with a £50,000 combined salary, down from £55,000. This is expected to support an additional 10,000 first-time buyers each year

Read more: Failed house sales cost UK economy at least £1.5bn a year

The vast majority of Nationwide’s high LTI lending is done through its Helping Hand, which allows eligible first-time buyers to borrow up to six times their income. This enables borrowing of up to 33% more than standard lending. Since launching in 2021, Helping Hand has supported around 60,000 first-time buyers.

The lender has also adjusted its mortgage affordability calculation by reducing stress rates by 0.75 and 1.25 percentage points, helping applicants borrow more, whether buying a first home, moving, or remortgaging.

Applicants can borrow, on average, £28,000 more; however, in some remortgage cases, customers could borrow up to £42,600 more.

Halifax mortgage deals

Halifax, the UK’s biggest mortgage lender, offers a five-year rate of 3.99% (also 60% LTV), unchanged from last week.

The lender, owned by Lloyds (LLOY.L), offers a two-year fixed rate deal at 3.83%, with a £999 fee for first-time buyers, also unchanged.

It also offers a 10-year deal with a mortgage rate of 4.87%.

Halifax has enhanced its five-year fixed mortgage products by increasing borrowing capacity. This improvement allows borrowers to access up to £38,000 more, enabling them to secure larger mortgages based on individual incomes.

Cheapest mortgage deal on the market

NatWest (NWG.L) has taken the crown from HSBC (HSBA.L) for the cheapest five-year fix among the big lenders, at 3.94%. When it comes to the shorter two-year fix, Halifax comes in with the lowest offer, at 3.85%. However, both require a hefty 40% deposit.

According to the latest Nationwide figures, the average UK house price was £271,079 in August, so a 40% deposit equals over £108,000.

A growing number of homeowners in the UK are opting for 35-year or longer mortgage terms, with a significant rise in older borrowers stretching their repayment periods well into their 70s.

Read more: Why lifelong housing costs are derailing retirement planning for older people

Lender April Mortgages offers buyers the chance to borrow up to seven times their income on loans fixed for five to 15 years. Both those buying alone and those buying with others can apply for the mortgage.

As part of the independent Dutch asset manager DMFCO, the company offers interest rates starting at 5.05% and an application fee of £195.

Skipton Building Society has also said it would allow first-time buyers to borrow up to 5.5 times their income to help more borrowers get on the housing ladder.

Leeds Building Society is increasing the maximum amount that first-time buyers can potentially borrow as a multiple of their earnings with the launch of a new mortgage range. Aspiring homeowners with a minimum household income of £30,000 may now be able to borrow up to 5.5 times their earnings.

Mortgage holders and borrowers have faced record-high repayments in recent years, as the Bank of England’s higher base rate has been passed on by banks and building societies.

According to UK Finance, 1.3 million fixed-mortgage deals are set to end in 2025. Many homeowners will hope the Bank of England acts quickly to cut rates more aggressively. At the same time, savers will likely root for rates to remain at or near their current levels.

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