HSBC has become the latest lender to announce further reductions to its mortgage rates.
Two and five-year fixed rates are being slashed for people with deposits of 25, 30 and 40 per cent. The bank is yet to confirm exactly how much rates will drop to.
The cut comes after a number of high street lenders cut rates last week. Nationwide now offers a market leading five-year fixed rate of 4.29 per cent for people with a 40 per cent deposit, charging a £999 fee.
“HSBC is having Fomo [fear of missing out] for not being at the top of the rate tables,” Rowan Frayling, managing director at financial advice firm, J Finance, said.
He added that he expects the British bank to try and top the market, although they are currently only offering the third or fourth lowest rate among peers. “I suspect they’re going for pole position. Brace for a big one,” he said.
Brokers added the cuts could be a reflection of the weak gross domestic product (GDP) figures released today.
The UK economy unexpectedly contracted, falling by 0.3 per cent between September and October, according to the Office for National Statistics.
It points to a weakening economy just ahead of the Bank of England’s rate-setting meeting this Thursday.
Swap rates, the rates at which that banks lend money to each other, have fallen on the back of the economy shrinking, sparking good news for homeowners and first-time buyers.
Rhys Schofield, brand director at Peak Mortgages and Protection, said: “Bad news on GDP often means good news for borrowers as it puts pressure on the Bank to reduce rates and protect the wider economy.”
Markets predict that the base rate will stay at its current level of 5.25 per cent before being cut towards the middle of next year.
Usually when interest rates increase, so do mortgage rates, but they have instead been falling recently as the markets have already priced in the predicted standstill.
Katy Eatenton, mortgage and protection specialist at Lifetime Wealth Management, said: “It’s an exciting end to the year on the mortgage front and should really help kick off property market activity in 2024. Mortgage rates are still far higher than what they once were but they’re getting more competitive by the day.”
The average five-year mortgage rate fell below 6 per cent for the first time since mid-June last Friday.
The average two year fixed mortgage is 5.98 per cent, according to figures from financial analytics firm MoneyFacts, while the five-year fix is now 5.59 per cent.
“Coupled with pressure for mortgage lenders to deliver a strong start to 2024 to make up for a dire 2023, we will likely see more rate cuts into the new year and beyond,” said Rob Gill, managing director at London-based broker, Altura Mortgage Finance.
Although much higher than then the days when rates were as low as 1 per cent, they are dropping steadily with experts predicting they could fall below 4 per cent by the start of next year as competition among lenders gathers pace.
Several lenders have cut rates further lately. Virgin Money has said it will be slashing rates this week while Santander also now offers a five-year fixed rate, with a 40 per cent deposit, for 4.39 per cent.