HSBC set to reduce fixed-rate deals as hopes rise that mortgage rates will start to fall
HSBC became the first high street bank to announce they will be reducing rates on a swathe of their fixed-rate products, sparking hope that mortgage rates might begin to fall.
Mortgage rates have spiralled in recent months as inflation has remained stubbornly above the Bank of England’s target. Traders are now betting that the Bank of England will have to hike the base rate to 6.25 per cent in response.
However, inflation data out earlier this month showed a faster than expected fall, raising hopes that interest rates would not have to rise as high as previously expected.
After falling slightly last week, average rates on two-year and five-year mortgages climbed again on Tuesday, reaching 6.83 per cent and 6.34 per cent respectively.
HSBC did not disclose the size of the decrease, but currently a five-year deal with a 90 per cent loan-to-value ratio is priced at 6.04 per cent.
The move prompted hopes that other high street banks would follow, helping to bring rates down from their peaks after stubbornly high inflation
Riz Malik, founder and director at R3 Mortgages, said “I would not be surprised if more lenders follow this strategy this week, as they will be keen to not fall behind”.
Although rates look like they might come down slowly, findings from Bloomberg Intelligence showed the rapid increase in mortgage rates has already spooked prospective homebuyers.
According to the research, 36 per cent of respondents have opted to postpone or pause plans to buy a home due to soaring interest rates. However, this was lower than the 44 per cent looking to pause or postpone following the mini-budget.
Homebuyers are having to make sacrifices, with as many as 20 per cent of homebuyers now considering a cheaper property.
Iwona Hovenko, a real estate analyst at Bloomberg Intelligence, said changes in behaviour suggest that buyers may be “slowly getting used to higher rates”.
Despite rising costs, analysts at Royal Bank of Canada (RBC) said that mortgage affordability will not be a significant driver of UK banks’ cost of risk over the next 12 months.
“While the step-up in costs is significant, the impact will be a slow burn”, pointing out that only 55 per cent of mortgages will have refinancing by the end of 2023.
RBC estimated that owner-occupiers refinancing for the first time would be paying 43 per cent more per month, while owner-occupiers who have refinanced before would pay 36 per cent more.
Historically write-offs from mortgage loans have only accounted for around 3.5 per cent of total write-offs, despite making up around 60 per cent of UK banks’ loan books.