More lenders are launching better deals following the Bank of England’s decision to reduce the base rate last week
A mortgage price war has begun as Barclays has followed Santander in cutting rates to below 4 per cent with more lenders expected to follow.
Barclays has launched a five-year fixed deal for 3.99 per cent for those purchasing with 40 per cent deposit or equity. It will be available tomorrow (13 February) and has a product fee of £899.
TSB and Virgin Money have also announced they will cut rates on their fixed deals this week.
It follows Santander launching both a two and five-year fixed rates at 3.99 per cent at 60 per cent LTV (loan to value), making it the only lender offering sub-4 per cent rates on two-year fixes.
However, the fees are relatively large, with at £1,999 for those purchasing while for those remortgaging, the fee is only slightly smaller, at £1,749.
Experts have welcomed the news and expect more providers to follow in cutting rates.
Aaron Strutt of brokers Trinity Financial said: “It was only a matter of time before one of Santander’s competitors reacted by bringing out a 3.99 per cent rate as well but even by the fast paced mortgage market standards this is a pretty swift response from Barclays.
“The shame of it is that lenders can clearly offer cheaper rates but they hold off until one of their rivals offers a cheaper deal.
“We will probably get better mortgage deals on the back of Barclays rate cuts now.”
The cuts come following the Bank of England’s decision to reduce interest rates to 4.5 per cent last week. When interest rates fall, mortgage rates tend to follow.
Those on variable mortgages see immediate reductions while fixed rates take slightly longer to adjust.
When setting these rates, lenders take multiple elements into account, including their service levels and overall market conditions.
It also follows a period of higher than expected mortgage deals after swap rates – which underpin the pricing of fixed-rate mortgages – edged upwards following increases in the cost of government borrowing.
Simon Gammon, managing partner at Knight Frank Finance, said: “This is about competition and confidence. Swap rates haven’t moved much since the Bank’s decision to cut the base rate last week, but the lenders are clearly growing more confident about the direction of travel when it comes to the borrowing costs.
“Lenders are using the moment to get ahead of competitors and build a little market share. It’s been a disappointing few years and all the banks are hoping that 2025 will be the year that the pace of the recovery picks up.”
There are now three lenders offering sub-4 per cent rate for five-year deals. Lloyds is offering a rate of 3.89 per cent but requires customers to sign up to its Club Lloyds scheme.
NatWest is another big provider that has announced that it is cutting fixed rates.
It has said that from today (12 February) it will be slashing rates on multiple mortgages by up to 0.36 percentage points, though there are still cheaper deals available on the market.
MPowered has also made cuts to its fixed-rate mortgage range, with two-year fixes now starting at 4.34 per cent for those with 40 per cent deposit or equity with a £999 fee, or 4.59 per cent with no fee.
However, some experts think the decline in two-year fixes won’t last long.
Nick Mendes of brokers John Charcol said: “Currently, two to five year swap rates are below 4 per cent representing a notable decline compared to this time last month.
“However, with two-year swaps priced only marginally below this level, there is limited scope for other lenders to comfortably follow suit. As such, I do not expect many competitors to replicate this move. Without wider market support, this deal is unlikely to remain available for long – so it’s worth acting swiftly when opportunities like this arise.”