A row of traditional houses on a suburban street in Muswell Hill, north London, with views of Canary Wharf on the horizon.
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LONDON – Britain’s main business banks have begun slashing mortgage rates, a sign that financial stress on households may be easing after the Bank of England cut interest rates for the first time in more than four years.
HSBC, Santander Banks including Nationwide and Nationwide have cut borrowing costs following the Bank of England’s decision on Thursday to cut bank interest rates to 5% from a 16-year high of 5.25%.
Homeowners with tracker mortgages that follow their bank’s base rate will be the first to benefit from the savings. barclays bankSantander, Metrobank, Lloyds BankHalifax, Nationwide and HSBC all slashed repayment costs by 25 basis points shortly after the Bank of England’s announcement.
Those taking out a standard variable rate will also save money, which usually kicks in when a borrower’s tracker or fixed rate deal ends. Starting in September, Santander will reduce its SVR from 7.50% to 7.25%, Lloyds from 7.25% to 7.0%, and Halifax from 8.74% to 8.49%.
Tracker mortgages and SVR mortgages remain a relatively niche part of the UK mortgage market given their high volatility. According to data from trade body UK Finance, of the 8.39 million residential mortgages outstanding as of December 2023, 643,000 were tracker loans and 624,000 were SVRs.
However, analysts say it won’t be long before the 6.93 million households with fixed-rate mortgages are affected. In fact, last week Nationwide became the first lender since april The Bank of England will offer interest rates below 4% on top of its five-year fixed rate in anticipation of a shift in monetary policy.
“(Borrowers) expect fixed-rate pricing to improve further as lenders continue to strive for share in a highly competitive market,” David Hollingworth, associate director at L&C Mortgages, said by email.
Laura Suter, director of personal finance at AJ Bell, agreed that other lenders “will follow suit” as Thursday’s decision “fires the starting gun” for the Bank of England’s interest rate cut cycle.
Boost for UK property
While the initial savings for homeowners will be small – the average homeowner on track rates saves around £28 a month, according to Hargreaves Lansdown – the savings are expected to boost confidence that the UK is pulling out of the woods. The cost of living crisis is having a knock-on effect on the UK property market.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “It can convince more buyers that this is a market worth buying boldly.”
Emily Williams, research director at Savills, said the increased number of buyers should lead to increased activity in the autumn market, with prices expected to increase by 2.5% in total this year.
Still, with the Bank of England voting by a slim majority of 5 to 4 to cut interest rates, uncertainty remains over the path of future rate cuts, with the Bank warning that it will proceed with caution. As a result, some analysts warn it will be some time before more savings are delivered to homeowners.
Suren Thiru, economic director at ICAEW, said by email: “The split vote among rate-setters points to a fairly hawkish rate cut, so this policy easing is unlikely to herald the start of a major rate-cutting cycle.”
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