Fresh mortgage price war breaks out
A fresh mortgage price war has broken out with a string of major lenders slashing their rates in recent days.
Metro Bank, Halifax, Barclays, Nationwide Building Society, HSBC, Virgin Money, Skipton Building Society and Norwich and Peterborough Building Society are among those who have sharpened up their ranges.
The tussle for homeowners' business has seen several lenders once again drop their rates below 3% for people looking for a five-year fixed rate mortgage.
Meanwhile, Virgin Money has taken the unusual step of launching a new range which allows people to fix in for one year longer than the usual five-year deals and protect themselves against the prospect of interest rates rising for a prolonged period.
Virgin's new six-year fixed rate deals, which are available at the same price as its five-year fixes, include a product available for people with a 30% deposit with a rate of 2.99% and a fee of £995. Alternatively, people can opt to go fee-free and pay a higher rate of 3.59%.
Metro Bank also slashed its five-year fixed rates today. The new products, which carry a fee of £999, include a five-year fix at 2.99% for someone with a 40% deposit and one at 3.79% for a borrower with a 15% deposit to put down.
The announcements came as Norwich and Peterborough Building Society unveiled a 0.20% interest rate reduction on first-time buyer deals.
The society has shaved a fee-free two-year fixed rate deal for people aspiring to get on the property ladder down from 5.19% to 4.99%, as well as chopping product rates for people with 25% and 35% deposits.
Across the market, someone with a 10% deposit to put down and looking for a five-year fixed rate mortgage would have found the average rate was 4.98% at the start of the month, but this has now dropped to 4.92%, according to financial information website Moneyfacts.
Over the same period, the average two-year fixed rate on offer for someone with a 10% deposit has decreased from 4.38% to 4.31%.
Moneyfacts said new deals of note also include a 3.84% two-year fix from Halifax for people with a 15% deposit with a £265 fee. A month ago, the rate was 4.14%. It also highlighted a two-year fix from Woolwich for people with a 30% deposit.
The mortgage battle may seem surprising as it comes at a time when speculation has been mounting over the prospect of the Bank of England base rate moving off its historic 0.5% low, pushing up costs for borrowers.
Minutes released by the Bank today showed that its Monetary Policy Committee (MPC) has been split over interest rate policy for two months in a row.
But David Hollingworth, head of communications at London and Country Mortgages, said that swap rates, which lenders use to price their loans, have been on a downward path.
He said: "Swap rates have been falling back and it seems the markets feel it's going to be too soon for the base rate to rise before the end of this year now.
"So you've got slightly reduced funding costs for lenders going into the autumn, when traditionally, you see lenders trying to come back strongly into the market."
He suggested that some businesses may be trying to meet end-of-year lending targets, and so will be dropping their rates now to encourage new applications, which will take a while to process.
Mr Hollingworth also suggested the "improved appetite" for lending has been amplified by lenders now having got to grips with new, stricter mortgage lending rules which came into force at the end of April.
The market saw some disruption earlier this year as lenders' systems adjusted to the new rules, which force them to probe mortgage applicants in more detail about their borrowing habits. The number of mortgage approvals dipped around that time before heading back upwards.
Mr Hollingworth said: "Lenders have let these processes bed in before rolling their sleeves up to get some business back in.
"This is not just window dressing, lenders are looking to do business."
He predicts more lenders will follow suit and this could provide another window of opportunity for people who missed out on the fierce mortgage price war seen last year, around the time the Government's Help to Buy mortgage support scheme was launched.
But with a rise in the bank rate feeling closer than it was a year ago, he believes mortgage rates are unlikely to match the rock bottom levels seen in 2013.
"If you thought you'd missed out on some of the lower rates from a few months ago, you've got a second bite of the cherry," he said.
Another possible explanation suggested by experts for the new price war is that some lenders may have hoarded cheap cash which they received as a result of the Funding for Lending scheme (FLS).
The scheme was launched in the summer of 2012 and helped to ramp up competition in the mortgage market by allowing lenders to get access to cheap funding, on condition that they passed on the benefits of this to borrowers. The initiative was re-focused in 2014 away from households and towards helping businesses.
Rachel Springall, a spokeswoman for Moneyfacts, said: "While the FLS was withdrawn for household lending in January, there is still ongoing competition in the market.
"Providers who have under-lent will need to meet their year-end lending targets, therefore one of the quickest ways to boost business is to reduce mortgage rates.
"With the murmurings of a base rate rise in 2015, remortgage customers sitting on a variable rate will be considering their options, as well as first-time buyers who still have the Help to Buy scheme as an option to get on to the property ladder."