Lenders slash mortgage prices as Bank of England holds interest rates

Most major UK lenders have announced cuts to the interest rates on select mortgage products as the Bank of England decided to hold interest rates.

The average rate for a two-year fixed mortgage dropped to 4.59% this week from 4.75% previously, according to data from Uswitch. The average five-year fixed deal eased to 5.03% from 5.04%. Those are the average rates on a 75% loan-to-value (LTV) mortgage, meaning buyers need to have at least 25% for a deposit.

Nationwide Building Society introduced mortgage rate cuts of up to 0.25 percentage points. The reductions span a range of fixed-rate products, including two, three, five, and 10-year deals.

HSBC UK announced on Monday that it had introduced a new maximum mortgage loan-to-income (LTI) ratio of up to 6.5 times annual income for its premier customers. Barclays (BARC.L) and Halifax also reduced their rates this week.

The mixture of moves on mortgage deals follows the Bank of England's (BoE) decision to keep interest rates on hold at 4%. Traders are now eyeing a December rate cut, which would bring interest rates down to 3.75%.

Inflation data showed that the UK's consumer price index (CPI) grew by 3.8% in the year to September, unchanged from July and August.

Read more: Bank of England holds interest rates at 4% in knife-edge decision

Alice Haine, personal finance expert at Bestinvest said: “For mortgaged homeowners, the headline interest rate may not have shifted, but the good news is that mortgage affordability has improved for some. Five rate cuts since last summer, a more relaxed lending environment, slower house price growth and strong wage gains have helped to ease affordability pressures. However, today’s decision to hold rates, coupled with uncertainty over potential property tax hikes in the upcoming budget may feel unsettling for homeowners and prospective buyers alike."

“Reassuringly, mortgage rates are in a much better place than three years ago, when the average came in above 6% versus today when it sits just under the 5% mark*. The group most likely to feel disappointed by the BoE’s decision are homeowners with large mortgages coming off ultra-low fixed rates secured before the central bank began hiking in December 2021. Many five-year deals secured in late 2020 or 2021 – when rates were at record lows - are now expiring, so household budgets will need to adjust to accommodate higher repayments."

“Anyone emerging from a low-rate deal would be wise to lock in a new product quickly rather than wait for borrowing conditions to ease further. Mortgage rates have fluctuated in recent weeks amid uncertainty around the future path of interest rate cuts – and that volatility may persist as we approach the budget."

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Here's more detail on major lenders' mortgage rates this week:

HSBC mortgage deals

HSBC (HSBA.L) has 3.99% for a five-year deal, with a £999 fee, which is unchanged from the previous week. For those with a premier standard account with the lender, this rate is 3.96%.

Looking at the two-year options, the fixed standard rate is 3.84% with a £999 fee, which remains unchanged from last week.

Both cases assume a 60% LTV mortgage, meaning buyers need to have at least 40% for a deposit.

HSBC (HSBA.L) offers 95% LTV deals, meaning you only need to save for a 5% deposit. However, the rates are significantly higher, with a two-year fix at 4.87% or a five-year fix at 4.79%.

This is because their financial situation and deposit size determine the rate someone can get. The larger the deposit, the lower the LTV, allowing buyers to access better deals because lenders consider them less risky.

NatWest mortgage deals

NatWest's (NWG.L) five-year deal is 3.84% with a £1,495 fee, which is a drop from the previous 3.90% offer.

The cheapest two-year fixed deal comes in at 3.71%, a cut from last week's 3.77%. In both cases, you'll need a deposit of at least 40% to qualify for the rates.

Barclays mortgage deals

Barclays (BARC.L) cut its five-year fix to 3.98% from last week's 4.01%, with a £899 product fee. It also reduced its two-year fix to 3.73% from 3.86% with a £899 product fee.

Earlier in the year, Barclays (BARC.L) launched a mortgage proposition to help new and existing customers access larger loans when purchasing a home.

The initiative, known as Mortgage Boost, enables family members or friends to effectively "boost" the amount that can be borrowed toward a property without needing to lend or gift money directly or provide a larger deposit.

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Under the scheme, a borrower’s eligibility for a mortgage can increase significantly by including a family member or friend on the application. For example, an individual with a £37,500 annual income and a £30,000 deposit might traditionally be able to borrow up to £67,375, enabling them to purchase a home priced at around £107,875.

However, with Mortgage Boost, the total borrowing potential can increase if a second person, such as a parent, is added to the application. In this case, if the second applicant also earns £37,500 a year, the combined income could push the borrowing limit to £270,000, enabling the buyer to afford a home worth up to £300,000.

Nationwide mortgage deals

Nationwide (NBS.L) offers a five-year fix at 4.13%, lower than last week's 4.22%. First-time buyers are looking at 3.89% for a two-year fix, which is also a drop from the previous 3.99%. Both deals require a 40% deposit and come with a £999 upfront fee.

Carlo Pileggi, Nationwide’s head of mortgage products, said: “We’re making rate cuts across the majority of our fixed rate mortgage range with a number of sub-4% products.”

Furthermore, existing Nationwide customers nearing the end of their current mortgage deals can secure a two-year fixed rate of 4.79% with a 10% deposit. This fee-free option represents the maximum 0.25 percentage point reduction announced.

Eligible first-time buyers can apply for a mortgage with a minimum salary of £30,000 and joint applicants with a combined salary of £50,000. This is expected to support an additional 10,000 first-time buyers each year.

The vast majority of Nationwide’s (NBS.L) high loan-to-income (LTI) lending is conducted through its Helping Hand, which enables eligible first-time buyers to borrow up to six times their annual income. This enables borrowing of up to 33% more than the standard lending amount.

The lender also adjusted its mortgage affordability calculation by reducing stress rates in May by between 0.75 and 1.25 percentage points, helping applicants borrow more, whether buying a first home, moving, or remortgaging.

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Applicants can borrow, on average, £28,000 more; however, in some remortgage cases, customers may be able to borrow up to £42,600 more.

Halifax mortgage deals

Halifax, the UK’s largest mortgage lender, offers a five-year rate of 4.17% (also 60% LTV), a cut from last week's 4.12%.

The lender, owned by Lloyds (LLOY.L), offers a two-year fixed-rate deal at 4.01%, with a £999 fee for first-time buyers, which is also lower than the previous 4.02%.

It also offers a 10-year deal with a mortgage rate of 4.87%.

Santander mortgage deals

Santander (BNC.L) withdrew its 60% LTV mortgage products for first-time buyers on borrowing of less than £250,000 on two- and five-year terms on 19 September.

A spokesperson for the bank said that the "change was part of a reprice following the changes to swaps after the Bank of England held interest rates". Santander (BNC.L) continues to offer products with LTVs of 85% and above for first-time buyers, with the cheapest two-year fix coming in at 4.31% or 4.45% for a five-year deal.

Cheapest mortgage deal on the market

NatWest (NWG.L) offers the cheapest five-year fixed rate among the major lenders, at 3.84%. When it comes to the shorter two-year fix, it is NatWest again who offers the lowest rate, at 3.71%. However, both require a hefty 40% deposit.

A growing number of homeowners in the UK are opting for mortgage terms of 35 years or longer, with a significant rise in older borrowers stretching their repayment periods well into their 70s.

Meanwhile, Skipton Building Society is allowing first-time buyers to borrow up to 5.5 times their income, helping more borrowers get on the housing ladder.

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Leeds Building Society recently reduced the minimum household income requirement on its first-time-buyer mortgage range. This means single or joint first-time buyer applicants with a household income of £30,000 may now be able to borrow up to 5.5 times their earnings.

Mortgage holders and borrowers have faced record-high repayments in recent years, as the Bank of England's higher base rate has been passed on by banks and building societies.

According to UK Finance, 1.3 million fixed-mortgage deals are set to end this year. Many homeowners will hope the Bank of England continues to cut interest rates. At the same time, savers will likely root for rates to remain at or near their current levels.

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