Britain’s biggest lender tells homeowners ‘new normal’ mortgage rate will be 4.5pc
lloyds
The boss of Britain’s biggest lender has said that mortgage rates will stick at a “new normal” of up to 4.5pc.
Charlie Nunn, the chief executive of Lloyds Banking Group said that after a decade of rates between 1.5pc and 2.5pc, the expectation in the markets was that the Bank Rate would not drop below 3.5pc.
But he said that any cut to the Bank Rate, which is expected later this year, would be “beneficial” and could boost investment into the UK.
It comes after three of the UK’s biggest lenders, HSBC, Barclays and NatWest slashed their mortgage rates ahead of the general election on July 4.
Mr Nunn told Sky News: “There is going to be a higher cost of borrowing in the economy, probably based on what we can see happening at the moment.
“In terms of the impact on the broader consumer in the UK, it’ll take longer to feed through. Around mortgages specifically, we’ve just come off a decade where mortgages have been in the 1.5-2.5pc range.
“The expectations the market have is that interest rates probably won’t get below 3.5pc.
“And that means mortgages, or the new normal for mortgages, will be in that 3.5-4.5pc range, not 1.5-2.5pc.
Mr Nunn said that a reduction in rates would stimulate more government investment, by making borrowing cheaper.
The banking chief added that housing was a “really important topic” and said: “We think you need a 10-year plan to unlock the housing investment that would be needed to really make a difference.”
The average interest for a five-year fixed rate mortgage is currently 5.53pc, according to analyst Moneyfacts. The average offer on a one-year fixed savings account is 4.63pc.
The Bank of England raised the Bank Rate 14 times consecutively beginning in December 2021, before holding rates at 5.25pc last September, where it remained after the Monetary Policy Committee (MPC) meeting last week.
Lloyds Banking Group boss Charlie Nunn said lower rates would help boost investment in Britain - Hollie Adams/Bloomberg
The latest inflation figures falling to the target of 2pc has raised hopes for a cut as early as August. Analysts suggested that the Bank was unlikely to tinker with rates during an election process, in an effort to protect its perceived independence.
Lloyds, which also owns the Halifax brand, saw a sharp drop of 28pc in pre-tax profits between January and March, having fallen from £2.3bn last year. Rising interest rates had boosted the lender’s profits by almost 50pc.
As the Bank Rate rose, the major lenders cashed in on higher mortgage offerings, and were slapped on the wrist by Chancellor Jeremy Hunt and the city regulator the Financial Conduct Authority (FCA) for failing to also pass on the hikes to savers.
In March, four of the big banks: Santander, Barclays, Lloyds Banking Group and NatWest, were questioned by the Treasury Select Committee about why rates had taken so long to rise.
Anna Bowes, of comparison website Savings Champion, said: “One of the problems is that the banks don’t need to offer better rates in order to attract cash.”
In its response, the FCA said it “continues to look closely at the value firms provide to their customers.”
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