In response to the Bank of England’s decision to reduce the Bank Rate to 5%, major high street lenders in Britain have begun lowering their mortgage rates. This move comes after over four years without a rate cut, indicating potential relief for households facing financial pressure. HSBC, Santander, and Nationwide are among the lenders that have already decreased borrowing costs, benefitting homeowners on tracker mortgages that follow the Bank’s base rate.
Immediate Savings for Homeowners
Following the BOE’s announcement, Barclays, Santander, Metro Bank, Lloyds, Halifax, Nationwide, and HSBC all swiftly reduced repayment costs by 25 basis points. This reduction will be particularly beneficial for those on standard variable rates (SVRs), which are set to see significant savings. Santander, Lloyds, and Halifax have announced plans to lower their SVRs in September, providing relief for borrowers.
While tracker and SVR mortgages remain a niche segment of the U.K. market, with 643,000 trackers and 624,000 SVRs out of 8.39 million outstanding residential mortgages as of December 2023, it is expected that reductions will soon extend to the majority of households on fixed-rate mortgages. Lenders are anticipated to offer more competitive deals, with Nationwide already introducing a sub 4% rate on its five-year fixed rate mortgage following the BOE’s policy shift.
Financial experts are optimistic about the impact of the rate cuts on homeowners and the housing market. While initial savings for borrowers may be modest, averaging around £28 per month for tracker rates, the overall market sentiment is positive. This boost in confidence could encourage more buyers to enter the market, stimulating activity and potentially driving price growth. Savills’ director of research, Emily Williams, predicts a +2.5% increase in prices this year as a result of heightened buyer interest.
Despite the positive developments, the Bank of England has emphasized caution with its rate-cutting decision. The slim 5-4 majority in favor of reducing rates signals uncertainty about the future trajectory of cuts. Some analysts caution that significant savings for homeowners may take time to materialize, as the central bank remains vigilant in its approach. Suren Thiru, economics director at ICAEW, highlighted the split vote as an indicator that the rate cut may not mark the beginning of an extensive cycle of interest rate reductions.
The recent rate cuts by the Bank of England have sparked a wave of mortgage rate reductions by major lenders in the UK. While the immediate impact is positive for homeowners, particularly those on tracker and SVR mortgages, uncertainties about the future path of rate cuts remain. However, the overall sentiment is one of cautious optimism, with expectations of increased market activity and price growth in the coming months.