Three of the largest lenders cut fixed deals by a quarter of a point.
Three of the region’s largest mortgage lenders cut the price of their fixed-rate deals this week, in the clearest sign yet that the lending market expects borrowing costs to keep easing into the new year. Valley Building Society, Harrow Mutual and the Calder and Selwyn Bank each reduced selected two- and five-year fixes by around 0.25 percentage points, with the changes taking effect between Monday and Wednesday.
The cheapest five-year fix now available from the three lenders is 3.89 per cent for borrowers with a 40 per cent deposit, down from 4.14 per cent a week ago. Two-year deals for buyers with a 10 per cent deposit have fallen to about 4.6 per cent, still well above the levels of four years ago but the lowest since the spring of last year.
Why now
The cuts follow a steady fall in swap rates, the wholesale borrowing costs that lenders use to price fixed mortgages, over the past six weeks. Markets have increasingly priced in at least one further cut to the central bank rate early next year, after inflation came in below forecasts for the second month running. Lenders also have commercial reasons to move before Christmas: December is usually one of the quietest months for new applications, and banks that want to hit annual lending targets need to tempt borrowers who would otherwise wait until January.
“A quarter of a point does not sound like much, but on a typical mortgage in Calder it is worth about £35 a month. For people coming off a deal fixed at two per cent, every bit of that matters.”
That was the view of Priya Ramsay, an independent mortgage broker with an office on Quay Street, who said her phones had been busy since Monday. She said the clients most affected were those whose cheap fixes taken out several years ago are now ending. Roughly 14,000 households in the Calder area are due to come off a fixed rate over the next twelve months, according to estimates from the regional housing observatory.
What it means for buyers and those remortgaging
For a borrower with a £220,000 mortgage over 25 years, the difference between a rate of 4.14 and 3.89 per cent is about £30 to £35 a month, or roughly £2,000 over a five-year fix. Brokers say the cuts are unlikely to transform affordability on their own but could tip the balance for first-time buyers who were close to the limit of what lenders would offer.
House prices in Calder rose 1.8 per cent over the past year, according to the latest figures from the land registry, with the strongest growth in the hill towns and the weakest in the new flats around the canal basin. Estate agents report that asking prices have flattened since the summer and that more sellers are accepting offers below the advertised price.
Ramsay’s advice to anyone whose deal ends in the next six months is to secure a rate now – most lenders allow a product to be reserved up to six months ahead – and to switch if a cheaper deal appears before completion. Borrowers on variable rates, she added, should check whether their lender passes on any central bank cut in full; not all of them do.
Will rates keep falling?
Economists are divided on how far and how fast. Dominic Feld, chief economist at the Harrow Mutual, said he expected fixed rates to drift down by another quarter to half a point over the coming year, but warned that a rise in energy prices this winter could stall progress. Other lenders are expected to follow this week’s cuts, and smaller building societies typically adjust within a fortnight of the large ones. For savers, the news is less welcome: easy-access savings rates are already beginning to fall in step.
