HSBC becomes first big UK lender to cut mortgage rates

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HSBC has become the first big lender in the UK to announce it is cutting rates on fixed-term mortgages, in a rare sign of hope for homeowners facing borrowing costs of almost 7 per cent.

The UK’s sixth-largest bank said on Wednesday it was reducing the cost of residential products by as much as 0.35 percentage points, following a spate of sharp increases in recent months across the market.

HSBC has cut rates on about 100 of its mortgage deals, including reducing a two-year fixed-rate mortgage with 60 per cent loan-to-value by 10 basis points to 6.14. The reductions follow better than expected inflation data last week, which has trimmed market expectations for further interest rate rises.

Brokers said they expected that other big banks would follow HSBC in cutting prices on fixed-rate deals in order to win business. Smaller lenders including Platform, part of the Co-operative Bank, Yorkshire Building Society subsidiary Accord Mortgages and Australian non-bank lender Pepper Money all said on Tuesday they would be lowering rates.

“I think some other large banks will introduce lower rates,” said Adrian Anderson, director at mortgage broker Anderson Harris. “This is the first good news we’ve had for six weeks and there’s definitely some scope for lenders to start reducing rates.”

But brokers also warned that borrowers faced a mixed picture ahead of the Bank of England’s next interest rate decision next week. Two-year fixed-rate mortgages reached 6.86 per cent on Wednesday, well above the level seen last year after the unfunded tax cuts in then-prime minister Liz Truss’s “mini” Budget, and other lenders are still raising rates.

Aaron Strutt, product director at broker Trinity Financial, described the week’s news as a “mixed bag”. Santander said on Monday that it was increasing the price of some mortgages, while Clydesdale Bank announced on Tuesday that it would be raising prices by as much as 0.3 percentage points on fixed-rate deals for existing and new customers.

Other lenders may be holding out until the base rate decision on August 3 before deciding whether to take action, he said.

“While certain lenders have taken advantage of this window to lower rates and offer competitive deals, others may adopt a more cautious approach and wait until August’s developments before making significant mortgage rate reductions,” said Chris Sykes, technical director at broker Private Finance.

Swap rates are a key guide for lenders looking to price fixed-rate mortgages. But other factors influence their decisions, including their appetite for new lending.

Nick Mendes, broker at John Charcol, said lenders would be staggering reductions over the next few weeks “to ensure that they do not quickly become market leading, resulting in an influx of applications and dampening their service levels.”