Lenders will cut rates again ‘after holidays’

Lenders will look to slash mortgage rates again in the fourth quarter as they struggle to hit their year-end lending targets, brokers say.

Over the past month, a number of lenders have increased their mortgage rates but, equally, others have cut them.

It has been suggested the lenders that have increased rates have done so to stem the flow of business during the summer months when it is more likely staff will be on holiday.

However, brokers believe this trend will reverse in September as lenders seek once more to hit their lending targets.

With the exception of Nationwide, the major high-street lenders have lent significantly less in the first six months of this year than during the same period of 2014. Half-year results show Royal
Bank of Scotland’s lending was down by 7.1 per cent, Santander’s was down by 7 per cent and Lloyds’ was down by 19.1 per cent.

Further, as swap rates are still relatively low and have not moved significantly over the past two months, this will allow lenders to price their fixed-rate products more keenly.

John Charcol senior technical manager Ray Boulger says: “I have seen a lot of comment that mortgage rates are going up because the cost of funds is going up. 

“Actually, if you look at gilt yields and swap rates over the past two months, they haven’t changed that much. They have moved within a 20 basis point range but they haven’t moved that much.

“I think a lot of the increase [in rates] is down to the fact that lenders are keen not to have too much business coming in in August when their staffing levels are lower.

“Come September, when most people will be back from holidays, lenders’ minds will be focused on meeting their lending targets as a lot of them are behind. 

“I suspect then we will see a bit more competitiveness in the market.”

Capital Fortune managing director Rob Killeen says: “I think we’ve probably seen the lowest rates. However, later in the year, lenders that have not hit their targets could come in quite aggressively. Lenders are missing targets by some distance and they are clambering for business.”

He adds: “We do not think risk will give; it will be margin. They will just chase it down [to attract business].”