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UK Lenders Slash Home Loan Costs Amidst Falling Mortgage Rates and Inflation Optimism

Three large UK lenders announced they would cut the costs of home loans this week as mortgage rates continued to fall on the back of an improved outlook for inflation.

The moves by NatWest, Halifax and Virgin Money followed cuts by Nationwide, Barclays, TSB and HSBC last week, offering further relief to homeowners who are still facing higher borrowing costs than in the wake of last year’s “mini” Budget.

“More banks and building societies have been lowering their rates in recent weeks as they try to attract more borrowers,” said Aaron Strutt, director at Trinity Financial. “We are starting to see acceptance criteria changes to make it easier to get mortgages and even the return of lower rates being offered for a week to tempt borrowers to take action.”

On Tuesday, Virgin cut costs on some products offered via brokers by as much as 0.41 per cent, while Halifax reduced the rate on its five-year fixed-rate remortgage product by 0.18 percentage points and decreased its 10-year one by 0.27 percentage points.

NatWest told brokers it would cut the rates on both purchase and remortgages by up to 0.30 percentage points across both two and five-year products from Wednesday.

Some smaller lenders also pushed through cuts to rates on Tuesday, including Foundation Home Loans and Vida Home Loans. Accord, Yorkshire Building Society’s intermediary-only subsidiary, is also reducing the cost of some of its buy-to-let mortgages.

Persistently high inflation for most of this year has led to a sharp rise in mortgage rates in recent months. But a bigger-than-expected drop in official inflation data for June helped to stabilise financial markets, with lenders moving to reduce funding costs.

Official data released on Monday also showed that UK mortgage approvals rose in June, with consumer credit growing at its fastest pace for five years despite analysts predicting that the mortgage market would soften in the face of high rates.

Dan Frumkin, chief executive at high street challenger Metro Bank, said that despite macroeconomic and inflationary pressures, the mortgage market was expected to remain robust.

“I think it’s more buoyant and resilient than some people think — we anticipate lower origination volumes, but we don’t anticipate it being as bleak as others think it will be.” Frumkin said that although the Bank of England was expected to raise base rates again on Thursday, the move should not affect mortgage costs, as they rely on swap rates, which are based on the market’s expectation for inflation. Nevertheless, mortgage costs remain significantly above the highs in the wake of last September’s disastrous “mini” Budget that triggered chaos in the markets. The average price of a two-year fixed mortgage is 6.85 percent, according to Moneyfacts, almost 20 basis points above last October’s peak.


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