UK mortgage lenders push through further rate cuts

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High street lenders announced further cuts to UK mortgage rates on Tuesday, although average prices remain above levels reached immediately after last year’s disastrous “mini” budget.

The latest rate cut follows comments from Bank of England Governor Andrew Bailey last week that the UK may avoid further interest rate hikes.

“There’s been some movement in the market over the past week or so,” said Aneisha Beveridge, head of research at property agency Hamptons. “Swap rates (the rate banks use to price mortgages) have fallen slightly since Andrew Bailey’s comments.”

Nationwide, the UK’s second-largest mortgage lender, will reduce costs by 0.29 percentage points, while Santander, the fourth-largest mortgage lender, will reduce costs by 0.14 percentage points. Smaller lenders such as Hinckley & Rugby Building Society, Skipton Building Society and MPowered Mortgages have already pushed for cuts.

Last week, Bailey told lawmakers that rates were “closer” to the top of the cycle after 14 consecutive increases at 5.25%.

The Bank of England is expected to raise its benchmark interest rate by another quarter of a percentage point next week, but investors are divided over whether further increases will be made before the end of the year.

Beveridge said part of the reason for recent mortgage rate cuts was expectations that base rates would gradually start to fall from next year. “Lenders are on swap rates until (the end of the term), so they’re already pre-empting base rate cuts next year,” she said. “If (base) rates stay higher for longer, you might start to see mortgage rates fall more now and less next year.”

The average price for a two-year fixed mortgage on Tuesday was 6.66%, according to Moneyfacts. In early August, the inflation rate reached 6.85%, the highest level since 2008, but fell due to better-than-expected inflation data.

But average borrowing rates remain higher than levels reached in October last year, when unfunded tax cuts in then-chancellor Liz Truss’s “mini” budget sparked wild market volatility and sent home loan costs soaring.

“Affordability is affecting future lending. Higher mortgage rates are making it harder than ever for single-income buyers to afford a home,” said Andrew Wishart, senior real estate economist at Capital Economics )express.

The value of UK residential mortgages in arrears jumped to a seven-year high in the three months to June, quarterly data from the Bank of England showed on Tuesday.

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