Yahoo Finance Major lenders cut fixed rates in mortgage price war
A mortgage price war has begun after two of the biggest high street lenders announced steep cuts to their fixed rate deals.
TSB and Nationwide both reduced the cost of borrowing following a property sales slump, house price falls and a decline in mortgage approvals.
Analysts said other lenders would “aggressively” follow suit in a bid to attract the customers who remain in the market.
TSB has reduced its five-year fixed rates for home buyers and people remortgaging by up to 1.3 percentage points from Monday. A borrower taking out a £200,000 loan on TSB’s new rate of 4.99pc would save £1,872 over 12 months, compared with the previous rate of 6.29pc.
Nationwide introduced fixed-rate reductions of up to 0.6 percentage points across its range on Friday. A customer seeking to purchase a new home with a 15pc deposit can secure a five-year fixed rate with Nationwide at 4.79pc – a fall of 0.6 percentage points, the biggest reduction offered by the lender.
Jane King, an independent mortgage adviser, said that the fall in rates was a sign that lenders were struggling for business.
She said: “The message that I'm getting from lenders is they're just not getting any business. The bottom has fallen out of the purchase market.”
Scott Rochester, of Trinity Financial, said that he expected other lenders would launch “aggressively priced mortgages” in order to compete in the quickly changing market.
He said: “I expect over the next few weeks that all lenders will come out with reduced pricing. I'm not quite sure how low they can go. I think their margins are probably going to be pretty slim, but I fully expect the whole market to come out with cheaper deals over the next few weeks.”
According to analysts at Moneyfacts, the average two-year fixed-rate mortgage cost 5.75pc on Friday compared with a high of 6.65pc last October.
It came as house prices were reported to have fallen in December for the fourth consecutive month, according to Halifax, with the average home now worth £12,700 less than it was in August.
With no sign of improvement for house prices over the coming months, Ms King said many potential buyers were holding off purchasing property, which would only prolong the struggle for mortgage providers.
Ms King said: “A lot of my clients are going to hang on maybe until February or March time before making a decision.
"So if lenders continue not to get any business, or very little business, then they've got no option but to reduce their rates still further.”
While fixed rates continue to fall, tracker mortgage charges have risen by 0.5 percentage points in line with the most recent Bank of England interest rate increase, causing the gap between the two to narrow. Ms King said that the case for a tracker is becoming less clear as a result.
Adrian Anderson, of Anderson Harris, said: “There is a correlation between house prices and the availability of mortgage finance and mortgage rates. If mortgage rates continue to reduce this should provide some potential homeowners with more confidence.”
