A row of traditional houses on a street in the London suburb of Muswell Hill, located in the north of London, with views of Canary Wharf on the horizon.
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LONDON — Britain’s big lenders have started cutting mortgage rates in a sign that financial pressure on households may be easing after the Bank of England cut interest rates for the first time in four years.
HSBC, Santander and Nationwide are among lenders to cut borrowing costs after the BOE decided on Thursday to cut its bank rate to 5% from a 16-year high of 5.25%.
Property owners with tracker mortgages, which follow the Bank’s base rate, will be the first to benefit from the savings. BarclaysSantander, Metro Bank, LloydsHalifax, Nationwide and HSBC all cut repayment costs by 25 basis points shortly after the BOE’s announcement.
Savings will also be seen by those with standard variable rates, which usually come into effect once a borrower’s tracker or fixed rate agreement ends. From September, Santander will cut its SVR from 7.50% to 7.25%, Lloyds from 7.25% to 7.0% and Halifax from 8.74% to 8.49%.
Given their more volatile nature, tracker and SVR mortgages remain a relatively niche part of the UK mortgage market. Of the 8.39 million home mortgages outstanding in December 2023, 643,000 were trackers and 624,000 were SVRs, according to trade body UK Finance.
But analysts suggest it may not be long before reductions reach the 6.93 million households with fixed-rate mortgages. Indeed, last week Nationwide became the first lender since April to offer a deal below 4% on the five-year fixed rate pending a change in BOE monetary policy.
“[Borrowers can] we expect to see further price improvements in fixed rates as lenders continue to fight hard to gain share in a very competitive market,” David Hollingworth, deputy director of L&C Mortgages, said via email.
Laura Suter, director of personal finance at AJ Bell, agreed that other lenders “will follow suit” as Thursday’s decision “fires the gun” for the BOE’s rate cut cycle.
A boost for UK ownership
While the initial savings for homeowners are expected to be minimal – averaging around £28 a month for those using tracking rates, according to Hargreaves Lansdown – the savings are expected to boost confidence that Britain is emerging from the cost of living crisis , with negative implications for the UK housing market.
“It could convince more buyers that this is the right kind of market to take a leap of faith and buy,” said Sarah Coles, head of personal finance at Hargreaves Lansdown.
Savills research director Emily Williams said the increase in buyers should lead to a pick-up in market activity in the autumn, with price growth expected to total +2.5% this year.
However, as the BOE voted to cut rates by a narrow 5-4 majority, the future path for rate cuts remains uncertain and the central bank has warned it will proceed with caution. As such, some analysts have warned that it will be some time before more significant savings are passed on to homeowners.
“The decision to split the vote among rate-setters suggests that this was a rather aggressive rate cut, so this policy easing is unlikely to herald the start of a major rate-cutting cycle,” Suren Thiru, chief financial officer, said via email. of the ICAEW.
