Brexit uncertainty, low swap rates and a possible future base rate drop are causing a wave of price-cutting by mortgage lenders that could push two-year fixed rates as low as 0.95 per cent, say mortgage experts.
Several lenders announced lower rates or made other competitive changes following Britain’s vote to leave the European Union last month.
But the major wave of post-Brexit rate cutting is yet to come, according to John Charcol senior technical manager Ray Boulger.
Boulger says: “Lenders are holding fire for the moment and they are likely to seriously start cutting rates in the next few weeks. We will probably see more lenders offering rival two-year fixes to HSBC’s 0.99 per cent deal and we might even see the cheapest rate come down to 0.95 per cent.”
Last week Precise Mortgages cut residential and buy-to-let five- and six-year fixed rates up to 0.2 per cent, and introduced 10-year fixes.
Dudley Building Society introduced a cheaper buy-to-let range, while InterBay Commercial, part of OneSavings Bank, cut rates on its buy-to-let and houses in multiple occupation range.
Meanwhile, Coventry for Intermediaries launched a 2.09 per cent five-year fixed mortgage at 50 per cent LTV. First Direct also made reductions, while Kent Reliance launched a buy-to-let range.
Lenders say the rate cuts are the result of a combination of falling swap rates fuelling cheaper fixed rates as well as expectations of a drop in the Bank of England base rate. Last Thursday Bank of England governor Mark Carney hinted at a further cut to base rate, warning that monetary easing will be needed over the summer in a speech aimed at reassuring markets.
Precise Mortgages managing director Alan Cleary says: “Post the referendum we saw some financial turmoil, the result of which is an expectation that the Bank of England will reduce the base rate in the coming months. This has translated to a significant drop in the cost of five- and 10-year money.
“We are passing on some of that saving by launching a range of new products in residential and B2L.”
Other lenders say the rate drops are part of appealing to brokers.
OneSavings Bank head of second charge & commercial lending Darrell Walker says: “The new pricing and simplification of our product range forms part of our commitment to provide brokers with access to a competitive and compelling proposition for their specialist clients.”
But mortgage brokers say the rate reductions are also the result of lenders trying to grow market share before any Brexit aftershocks hit the property market.
“The lenders are starting to fight to get business in,” says one broker.
Trinity product manager Aaron Strutt says the rate cuts are the result of a combination of deliberate drive for market share and wider macroeconomic factors.
He says: “The swap rates seem to be falling quite rapidly. On that basis we could see a few good deals coming in. The prospect of a Bank of England base rate rise, which some were predicting for the end of this year, seems further away than ever. So on that basis lenders will be keen to get more business in.”
Association of Mortgage Intermediaries chief executive Robert Sinclair says: “The Bank of England is intervening by putting liquidity into markets, which means rates are falling and lenders have an opportunity to drop their own rates, if they decide to do that.
“It’s a great time for customers, these are lifetime low rates. They might go a bit lower, but you can lock into a very low mortgage rate at the moment for the long term.”
Coreco Group director Andrew Montlake says: “Lenders probably planned mortgage rate cuts to get more business in as things have slowed a bit with the Brexit debate. Swap rates have fallen dramatically.”
The market may see even more rate reductions in the future and perhaps a rise in the availability of products fixed for five years or more, according to Boulger.
He says: “Ten-year gilts fell from 1.37 per cent on the day of the referendum to 0.89 per cent in the space of a week, so there is definitely scope for more lenders to offer 10-year fixed rates below 3 per cent.
“I think for consumers the most off-putting factor about 10-year fixes is the early repayment charge, so if more lenders offer something similar to TSB where the ERC only lasts for five years, that would encourage more borrowers to fix for the long term. We might also see more lenders offering deals in between the five and 10-year categories, such as seven-year fixed rates.”