A Fresh Wave of Mortgage Rate Cuts Sweeps Across the UK

In a surprising move that has made waves in the mortgage market, Nationwide Building Society slashed its mortgage rates by a substantial 0.43 percentage points. In addition to this, they introduced an attractive five-year fixed rate of 4.43% — the first of its kind to dip below 4.5% since early July.

This new offering is available to home buyers capable of providing a 40% deposit and stands as a competitive alternative against Virgin Money's lowest five-year fix for remortgaging at 4.54%.

The last week saw several banks including HSBC, NatWest, Santander, and TSB follow suit, cutting their rates in a race for business. This trend of falling rates has been further propelled by a decrease in inflation and the anticipation that the Bank of England’s base rate will remain steady at the current level of 5.25%.

Some commentators  predict that by next May, fixed rates will be coming onto the market at about 3.5%.

For those seeking two-year fixed rates, Nationwide offers the lowest for buyers at 4.79%, while HSBC leads for those looking to remortgage at 4.93%.

These efforts to reinvigorate the property market come in response to a 3.2% decline in property prices over the year till October (as reported by H
alifax) and a 17% drop in property sales in September compared to the same month last year, according to HM Revenue & Customs.

In a noteworthy move, Santander has become the first bank since December 2021 to lower its Standard Variable Rate (SVR) — the default rate applied after a mortgage deal ends unless a new one is arranged. On Tuesday, they reduced their SVR for new borrowers from 8.5% to 7.5%. This could potentially simplify affordability checks as SVRs are used in stress tests to determine a borrower's repayment capacity.

Moreover, Barclays, Nationwide, and Virgin Money have raised the loan-to-income ratio for some borrowers. Last month, Barclays announced that applicants earning £75,000 or above could borrow up to 5.5 times their income, a significant increase from the previous 5 times.

While there are no indications of another stamp duty relief from the government, the Chancellor announced in his autumn statement on Wednesday that the government’s mortgage guarantee scheme will be extended for an additional 18 months. This scheme, which provides backing for mortgages for those with a 5% deposit, was utilised in only 37,376 purchases between its April 2021 launch and March this year.

As the year concludes with a fierce rate war, the outlook appears promising for homebuyers and those planning to remortgage in the coming year.