Article Summary

HSBC, the UK’s sixth-largest bank, has made an unprecedented move by announcing rate cuts on fixed-term mortgages, bringing hope to property investors and homeowners grappling with borrowing costs of nearly 7 per cent.

On Wednesday, HSBC revealed that it would be reducing the cost of residential products by up to 0.35 percentage points, a welcome development after a period of sharp increases across the market in recent months.

Approximately 100 of HSBC’s mortgage deals will see rate reductions, including a 10 basis point cut on a two-year fixed-rate mortgage with a 60 percent loan-to-value, bringing it down to 6.14 per cent. The decision to cut rates comes in light of better-than-expected inflation data last week, which has tempered market expectations for further interest rate hikes.

Industry experts predict that other major banks will likely follow HSBC’s lead and reduce prices on fixed-rate deals in a bid to attract more business. Several smaller lenders, including Platform (a part of the Co-operative Bank), Yorkshire Building Society’s subsidiary Accord Mortgages, and Australian non-bank lender Pepper Money, have already announced plans to lower rates.

Mortgage brokers view this as positive news after six weeks of challenging conditions, and they anticipate that lenders have room to further decrease rates.

Industry insiders believe that some lenders may hold off on rate changes until the base rate decision on August 3, as they consider various factors such as swap rates and their appetite for new lending before deciding on adjustments.

The cost of a two-year fixed mortgage had reached its peak at 6.65% following Kwasi Kwarteng’s mini-budget in the autumn of the previous year. Subsequently, mortgage rates began to decline, but they have once again surged above that figure due to persistent inflation, leading to expectations that the Bank of England would continue raising the base rate. In anticipation of such hikes, lenders have proactively increased their mortgage rates.

Despite both two-year and five-year average mortgage rates, economists at the International Monetary Fund (IMF) believe that the recent increases in real interest rates are likely to be temporary. They predict that as inflation is brought under control, central banks in advanced economies will ease their monetary policies, ultimately bringing real interest rates back to pre-pandemic levels.

Nick Mendes, a broker at John Charcol, points out that lenders will likely stagger their rate reductions in the coming weeks to avoid an overwhelming influx of applications that could impact their service levels.

HSBC’s decision to cut mortgage rates is a promising development for homeowners and property investors though, amid a period of rising borrowing costs. While some lenders are quick to follow suit, others may take a more cautious approach and wait for further economic developments before making significant reductions.

The impact of higher borrowing costs and the ongoing cost of living crisis has been significant, leading to a noticeable decline in demand. This is evident in the slump in mortgage approvals, which dropped to 48,700 in April from 51,500 in March. Furthermore, net mortgage borrowing also experienced a decline of £1.4 billion in April, reaching its lowest level since records began, as reported by the Bank of England.

The fluctuating mortgage rates and uncertainty from several cautious investors have contributed to cautious consumer behaviour and reduced activity in the housing market. As inflationary pressures subside and central banks adjust their policies, it remains to be seen how the mortgage market will respond and whether borrowing costs will stabilize or continue their volatile trajectory.

Despite the perceived uncertainty of the market, North Property Group have managed to have two record-breaking months in terms of sales following Kwasi Kwarteng’s Autumn Statement in October 2022. Savvy investors have seen the opportunity to capitalise on the lack of competition in the market due to the cautious nature of more inexperienced investors.

Would you like to find out more about mortgage rates and the state of the market? Click here to schedule an appointment to speak to a recommended mortgage broker.

To learn about the property investment opportunities above, or to find out more about how property investment works, get in touch with the experts at North Property Group today.