Mortgage rates war: As sub-four deals appear on the market, how low will they go?

Mortgage rates war: As sub-four deals appear on the market, how low will they go?

Britain’s mortgage price war has shown signs of slowing as macroeconomic uncertainty casts doubt on the outlook for interest rate cuts and a wider rebound.

Home loan prices have shot down in recent weeks as dozens of lenders offer better deals to battle for business in a market shrunk by economic turmoil.

Nationwide, the country’s largest building society, this week slashed some of its rates by as much as 0.81 per cent and debuted a new range of fixed and tracker rate products.

The changes mark the first time Nationwide has offered sub-four per cent rates in eight months as it catches up with the competition.

Earlier in the week, high street giant Barclays also cut its rates by as much as 0.6 per cent.

However, fellow Big Five bank Santander has pushed its mortgage rates up amid anxiety over Britain’s economy.

After reducing rates earlier this month, the lender increased rates on some of its fixed rate products by up to 0.2 per cent.

Chris Sykes, technical director at broker Private Finance, told City A.M. that Santander’s decision “wasn’t a surprise” considering it was pricing its loans “incredibly competitively”.

“Lenders need to manage business volumes when they are market leading,” he added. “They don’t want to end up having many times the usual level of business and struggle to get on top of it.”

Earlier this month, Co-op Bank pulled its then market-leading 3.89 per cent five-year mortgage rate after just three days.

Mortgage rates are influenced by SONIA swap rates – the main interest rate benchmark in sterling markets.

Two and five-year swap rates are on track to post their first monthly uptick since July as market digest a mixed picture for the UK economy.

Sykes said: “We will likely see rates hover around this point, perhaps slightly more, slightly less for a few months now, unless we get some positive data coming through.”

Markets were spooked last week by a double whammy of higher-than-expected inflation in December and poor retail figures that showed the UK is on the brink of a technical recession.

Investors have since pushed back their bets for when the Bank of England will start cutting interest rates, giving lenders narrower margins to offer better deals.

“As lenders compete hard for new business, any sudden move in swap rates can trigger a rapid reaction,” said Kevin Roberts, managing director of Legal & General Mortgage Services.

“Lenders constantly adapt their propositions in line with changing macro conditions, both in the UK and globally, so this is not a time for panic.”

He added: “The era of ultra-low interest rates that we became accustomed to in the last decade might well be over for the foreseeable future, and we may see several upward and downward moves in rates over the months ahead.”

Elsewhere, the government is reportedly considering announcing a major shake-up in the Spring Budget on 6 March to guarantee mortgages for first-time buyers with deposits of just one per cent.

Brokers have warned that the move could increase demand for housing and drive up prices even further, resulting in negative equity – when a property becomes less valuable than the remainder of the mortgage.

Although mortgage rates are falling, home loans with lower deposits usually have higher rates as they are seen as riskier to the lender.

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