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Barclays has cut several of its key mortgage rates, as brokers anticipate increased competition among high street banks offering lower prices ahead of an expected interest rate cut this summer.
The high-street bank on Monday said it would reduce rates on some of its two and five-year mortgage fixed-rate deals, including slashing its two-year 60 per cent loan-to-value rate from 5.1 per cent to 4.9 per cent.
Nicholas Mendes, mortgage technical manager at broker John Charcol, said more banks were likely to improve their offers in a bid to stay competitive, adding that “lenders certainly have room to lower” their rates — particularly on five-year deals.
A fall in borrowing costs on the eve of the July 4 general election could be claimed as a win by the Conservatives in the final days of the campaign as evidence that Prime Minister Rishi Sunak’s economic plan is working.
Barclays told brokers that from Tuesday it would be changing its rates on a selection of products across its residential purchase range.
After Barclays made its announcement, the lender Mpowered said it was making similar cuts, dropping the rate of its two-year 60 per cent loan-to-value rate to 4.76 per cent, from 4.87 per cent.
Prospective homeowners have been hoping for mortgage costs to fall after they rose sharply over the past two years, hitting household finances and making it more difficult for people to buy homes.
The average rate on two-year fixed contract rose from 3.25 per cent in June 2022 to its current 5.96 per cent, according to Moneyfacts.
The Labour party has blamed Liz Truss’s Conservative government for causing mortgage rates to spike following the autumn 2022 “mini” Budget.
The Bank of England last week held its interest rate at a 16-year high of 5.25 per cent, with traders pricing in an August rate cut announcement. But mortgage lenders may move ahead of the decision, taking advantage of a fall in swap rates that underpin mortgage pricing.
The five-year Sonia swap rate, used by UK lenders to price loans, has declined to 3.82 per cent from 3.93 per cent a month ago.
Matt Smith, mortgage expert at online property portal Rightmove, said the latest BoE decision to keep the base rate steady in line with expectations had brought “certainty” to the market.
He added this could lead to mortgage rates “trickling down rather than up over the next few weeks, which is really what home-movers are after”.
Lenders are under pressure to remain competitive as they fight for a pool of borrowers whose budgets have been squeezed by rising living and borrowing costs.
Hina Bhudia, partner at broker Knight Frank Finance, said Barclays’ cut reflected “growing competition for purchasing activity that has fallen short of expectations so far”.
