Some lenders have started cutting mortgage rates again this week, offering fresh hope to homeowners looking to remortgage and buyers trying to get on the property ladder.
HSBC has reduced selected fixed mortgage rates by up to 0.14 percentage points, with deals starting at 4.96% for two years and 4.99% for five years.
NatWest has also cut selected rates by up to 0.17 percentage points, with five-year deals starting at 4.95%.
The reductions come after average fixed mortgage rates climbed close to, and in some cases reached, 6% earlier this month.
According to Moneyfacts, the average five-year fixed mortgage rate hit 6% on October 5, while the average two-year fixed rate reached 5.98%.
Mortgage experts told Newspage that rates could edge lower by Christmas as lenders compete for customers and respond to any improvement in wholesale funding costs.
However, they warned that any reductions are likely to be gradual rather than dramatic. Volatile swap rates, inflation and geopolitical events could quickly reverse recent progress.
Some of the latest cuts may also simply undo increases introduced earlier in October, rather than signal a sustained fall.
How much could mortgage rates fall by Christmas?
Steven Greenall, Mortgage and Protection Advisor at Protect & Lend, expects fixed rates to fall further, provided economic conditions remain relatively stable.
He said: “I anticipate rates to be a little lower than now, at around 0.25% to 0.35% lower than where they are currently for two and five-year fixed. This assumes fairly standard 80% loan to value and clean credit.”
Thomas Boughton, founder of London-based Artillium Real Estate Finance, also believes competition between lenders could bring rates down in the coming months.
He said: “I personally think we’re in line for lower rates by Christmas. Most lenders we speak to are desperate to lend. HSBC has announced rate reductions this week. I wouldn’t be surprised to see other high-street lenders follow suit in quick succession to remain competitive.
“Banks have become far more agile with their pricing, meaning even relatively small movements in swap rates can be reflected in mortgage products shortly afterwards. Of course, nobody has a crystal ball and the outlook can change quickly.
“However, I believe much of the current economic uncertainty is already priced into the market. Unless we see another significant shock, I think we could start to see some recovery in the coming months, with mortgage rates gradually moving in a more favourable direction.”
But Stephen Perkins, Mortgage Broker and Managing Director at Yellow Brick Mortgages, warned borrowers not to assume this week’s cuts mark the start of a steep decline.
He said: “I think average fixed mortgage rates could be a little lower by Christmas, but I would not read too much into this week’s reductions. Some major lenders increased selected rates by 0.15% to 0.30% at the start of October, and many of the residential cuts we are now seeing are closer to 0.08% or 0.10%.
“Giving borrowers part of an increase back a week or two later is hardly a victory; it may simply show that lenders reacted too aggressively to the earlier volatility. If funding costs remain relatively stable, competition should gradually pull fixed rates down from their recent highs, but I would expect small steps rather than a dramatic fall.
“The market has shown repeatedly this year how quickly pricing can reverse, so borrowers should not try to perfectly time Christmas. Secure something suitable when needed and keep reviewing it if rates improve.”
Should I wait to fix my mortgage?
Jamie Alexander, Mortgage Director at Alexander Southwell Mortgages, also expects only a modest improvement by the end of the year.
He said: “A little lower by Christmas is my best guess. The Bank of England has room to cut if inflation continues to behave and the economic data gives them enough cover to move. Markets are already pricing in at least one more reduction before the end of the year and lenders tend to get ahead of that.
“But I would not expect anything dramatic. Swap rates have been volatile and any geopolitical flare-up or surprise inflation number can undo weeks of progress in a matter of days. We have seen that happen repeatedly this year.
“The direction of travel is downward. The pace is the unknown. Borrowers sitting on the fence waiting for a significantly cheaper rate before Christmas are probably going to be waiting a long time. A small improvement is realistic. A step change is not.”
Elliott Benson, owner of Sett Mortgages, is also optimistic that rates could be a little lower by the festive period.
He said: “I am thinking positively. I reckon by Christmas, slightly lower rates. Some lenders are reducing currently and I think the overall appetite is for them to come down. That’s what I want in my stocking.”
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What should borrowers do now?
The experts’ message is that borrowers should not put off a mortgage decision solely in the hope of securing a much cheaper deal before Christmas.
Rates could fall further if funding costs remain stable and lenders continue competing for business, but economic uncertainty means there is no guarantee.
Borrowers should compare the overall cost of a mortgage, including fees and any charges for leaving an existing deal, rather than focusing on the headline interest rate alone.
