- Santander, Barclays cut mortgage rates
- Competition leads to rate reductions
- Uncertain future rate trends
Santander and Barclays are the most recent significant lenders to reduce mortgage rates.
According to Moneyfacts, the two institutions join a total of 29 other lenders that have reduced interest rates in 2024.
Barclays will reduce interest rates on products aimed at homebuyers by up to 0.5 percentage points beginning tomorrow. This includes new best bargains for two-year fixed rate deals.
Santander, meanwhile, will join an army of lenders that are currently offering interest rates below 4%. Its simplest five-year fix, which costs 3.89 percent, is designed for remortgaging customers.
Managing director of EHF Mortgages Justin Moy states, “Santander has returned with a bang after a month since their last repricing.”
Although certain rate reductions were necessary to maintain competitiveness, the attention-grabbing offers below 4% for both purchases and remortgages will be more appealing than toffees in a tin of Quality Street.
Moy continues, “Barclays has also implemented substantial rate reductions for borrowers with both small and large deposits.”
“Primary purchasers seeking to capitalise on the rallying market conditions will undoubtedly find these appealing.” The January mortgage fire sale has begun in earnest.
Which mortgage packages do Barclays offer the most attractive?
Notably, the cheapest two-year fix offered by Barclays is decreasing from 4.62 percent to 4.17 percent. This rate is designated for customers making a minimum deposit of 40 percent.
This will surpass the 4.34 percent offer from The Co-Operative Bank and become the most affordable rate available in the two-year fixed rate market.
As of now, the mean two-year fixed rate for purchasers making a minimum deposit of 40% is 5.41%, as reported by Moneyfacts.
An individual who needs a mortgage of £200,000 in order to purchase a residence valued at £350,000 may qualify for the Barclays offer.
If so, the monthly payment would be £1,075 over the course of 25 years, as opposed to the average monthly rate of £1,219.
Those who make a minimum deposit of 25 percent may also qualify for savings as a result of Barclays’ rate reductions.
The interest rate on its two-year fixed-rate mortgage, which finances 75% of the value of a property (loan-to-value ratio of 75%), is 4.2 percent.
Regarding customers who have made a 5% deposit, who are almost certainly novice purchasers, Barclays has also enhanced its product in that regard.
Its two-year mortgage guarantee offer is being reduced from 5.8 percent to 5.5 percent, with no product expenses associated, for borrowers making a 5 percent deposit.
Using this to purchase a property for £200,000 with a £190,000 mortgage would result in a monthly payment of £1,167 over a 25-year repayment period.
It is noteworthy that this Barclays offer has been surpassed by several other lending institutions. Those who make a purchase with a 5% deposit can qualify for two-year fixed mortgages at the Co-operative Bank for 4.99 percent, albeit with £749 in additional fees.
“This is an extremely significant move by Barclays,” says South Coast Mortgage Services director Gareth Davies. “The finest one we have yet to see in 2024.”
The approach of four percent for two-year fixed-rate agreements is not something that many would have predicted even a few months ago.
In addition to their capacity to manage high volumes of business, this represents a significant market transition; unless other lenders also adapt, they will lose a substantial amount of business to them. Honourable Barclays.
Which Santander mortgage options are the most attractive?
Residential fixed rates offered by Santander are decreasing by a range of 0.17 to 0.82 percentage points.
Its cheapest five-year rate is currently 3.89 percent for borrowers with at least 40 percent equity in their property. This offer is subject to a £999 product fee.
With this offer, a borrower remortgaging a £200,000 mortgage with 25 years remaining could anticipate paying £1,044 per month.
For purchasers who make a minimum deposit of 40%, Santander will provide a five-year fixed-rate mortgage at 3.94 percent, subject to a £999 fee.
Those who are already Santander mortgage customers and wish to refinance with the institution will also qualify for reduced interest rates by remaining loyal to the lender. The term for this process is “product transfer.”
In addition, Santander is offering rate reductions of up to 0.56 percentage points for purchasers of newly constructed properties.
Two- and five-year buy-to-let mortgage rates have dropped 0.56 percentage points.
According to Elliot Culley, director at Switch Mortgage Finance, Santander was compelled to respond to the rate reductions implemented by other high street lenders in the past week. These reductions will align Santander’s products with those that are presently more competitive and accessible to clients.
“Their flagship offer is a five-year deal with a loan-to-value ratio of 60%, which will make other mortgage lenders green with envy.”
Will the decline in mortgage rates continue?
Some mortgage brokers doubt additional rate cuts despite mortgage lenders’ apparent price battle.
This is because lenders establish fixed-rate mortgage prices based on market interest rate patterns.
Swap rates reflect the expectations of interest rates on the market. Long-term market expectations regarding the base rate of the Bank of England, in addition to the broader economy, internal bank objectives, and competitor pricing, exert an influence on these swap rates.
Lenders evaluate mortgages through the use of Sonia swaps. Presently, five-year swaps are trading at 3.61 percent. Current two-year conversion rates are 4.19 percent.
This is up somewhat from the start of the year, when five-year swaps were 3.4% and two-year swaps were 4.02%.
One mortgage broker even speculates that interest rates might increase rather than decrease.
Nicholas Mendes of mortgage broker John Charcol said gilt yields and swaps rose daily last week and again yesterday.
Narrowing the margin renders sub-4 percent interest rates for a 5-year fixed-rate mortgage unviable for lenders. Similarly, sub-4.5 percent interest rates for a 2-year mortgage become unviable.
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“I have a hunch that the lenders who announced rate reductions last week will likely increase rates again.”
Which lenders with enough volume, even at razor-thin margins, can keep their rates down the longest will be intriguing.
He further states, “Since the downward pricing trajectory is occurring much more rapidly than expected, any respite in repricing is probably a temporary setback and not an indication of what’s to come.”
It is crucial to emphasise that although markets may appear reliable at times. They are still susceptible to fluctuations, making it exceedingly challenging to predict the optimal moment to execute a fix.
Utilising a broker and conducting ongoing market research throughout the application process is crucial. It will guarantee that you remain at the most favourable rate until the loan is finalised.
