Mortgage Rates Cut, But Borrowing Pressures Remain
Three UK banks, Barclays, HSBC, and TSB, have announced cuts to the cost of fixed-rate mortgages, reversing some of the price rises seen in recent weeks. This move is expected to give a boost to the housing market.
The cuts are predicted to give a boost to the housing market. Barclays Bank has announced it will reduce the price of five-year fixed-rate deals for new borrowers and remortgagers by up to 0.45 percentage points from Friday. Its five-year fixed-rate for borrowers with a 40% deposit is decreasing from 4.47% to 4.34%. At HSBC, there will be cuts to two-, three- and five-year home loans, and the bank has withdrawn the 10-year fixed-rate mortgages it offers to remortgage customers. TSB will also make changes on Friday, cutting two- and five-year deals for house purchases by up to 0.10%.
Image: Mortgage rates have been rising for weeks, but there may be good news for homeowners ahead.
In recent weeks, lenders had been increasing the price of mortgages as the prospect of a spring interest rate cut from the Bank of England receded. However, money market “swap rates” on which most fixed-rate deals are based have started to fall this week.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “This latest round of mortgage rate reductions from some big lenders is great news for borrowers. They come on the back of a decline in swap rates, which underpin the pricing of fixed-rate mortgages, over the past week. These cuts should give other lenders confidence to make similar reductions, which will stimulate activity and provide a welcome boost for the market.”
Despite the rate cuts, anyone remortgaging from a two-year fixed rate mortgage still faces a big increase in repayments: in May 2022, the average cost of one of those deals was 3.03%.
Mortgage possession claims by lenders, which is the first stage of the repossession process, rose by 28% in England and Wales in the first three months of the year compared with the same period a year earlier.
The pressure on homeowners to make higher repayments - at a time when other bills and prices have risen - is shown in new data. Mortgage possession claims by lenders, which is the first stage of the repossession process, rose by 28% in England and Wales in the first three months of the year compared with the same period a year earlier.
Many of these cases will not result in a home being repossessed, and the actual numbers remain very low compared with previous periods of high interest rates. There were 5,182 possession claims in the first quarter of the year, and only 759 repossessions - a 4% rise on a year ago.
Landlords have also faced increased costs from higher mortgage rates, and possession claims against landlords have been rising. Housing charity Shelter also said the Ministry of Justice numbers showed more tenants were facing no-fault evictions in England.
There were 7,863 no-fault eviction proceedings started in the first three months of the year, it said. The Law Society, which represents solicitors, called on the government to extend legal aid, which helps people going to court with the cost of legal advice.
Its president, Nick Emmerson, said: “We are concerned about the number of people who are at risk of becoming homeless. With the cost-of-living crisis and high interest rates, many are struggling with rent and mortgage payments and are at risk of losing their homes. More often than not, legal aid is their only hope but it remains out of reach.”
Ways to make your mortgage more affordable:
- Make overpayments. If you still have some time on a low fixed-rate deal, you might be able to pay more now to save later.
- Move to an interest-only mortgage. It can keep your monthly payments affordable, although you won’t be paying off the debt accrued when purchasing your house.
- Extend the life of your mortgage. The typical mortgage term is 25 years, but 30 and even 40-year terms are now available.
