End of mortgage drought as banks gear up for price war in New Year

Banks have kick-started a mortgage price war, ending four months of rate hikes. 

In a report, the Bank of England revealed ‘some signs of easing’ in the home loans market after lenders made it more difficult to get a mortgage earlier this year. 

Research by The Mail on Sunday found Barclays has in recent weeks cut rates by up to 0.16 per cent on its 75 per cent, 80 per cent and 85 per cent mortgages. 

Nationwide and Yorkshire Building Society have also cut rates on 85 per cent mortgages. 

Overall, the average cost of a two-year fixed-rate mortgage fell from a peak of 1.85 per cent in October to 1.83 per cent in November for borrowers with a 25 per cent deposit, according to separate data from analysts Bloomberg. 

The rate had climbed from a low of 1.38 per cent in April after the market was rocked by Covid and by a surge in demand when Rishi Sunak axed stamp duty in July. 

The average rate for a five-year fixed-rate mortgage levelled off at 2.02 per cent in November, having risen from 1.66 per cent in March. 

In its report last week, the Bank of England Monetary Policy Committee welcomed the ‘stabilisation’ of the market and said lenders were still banking huge profits on mortgages. The minutes from its latest meeting said high demand and ‘operational constraints’ had pushed up prices. 

Lenders have struggled to keep up with demand – with so many staff working from home and the task of carrying out mortgage valuations made trickier by social distancing rules. 

The Bank of England report said lenders had also pulled back due to fears of a crash in the housing market. Banks axed their best deals and hiked prices to manage the flood of new customers and profit from the stampede for new homes after the Spring lockdown was lifted. 

Last night, experts welcomed signs that banks were starting to compete for customers again. 

Ray Boulger, of mortgage brokers John Charcol, said: ‘This is a return to a more competitive mortgage market. The market is generally very competitive when it is working well, but it doesn’t work well when something unexpected happens as it did this year. 

‘But as we get more competition from lenders, we are starting to see prices come down. 

‘I am expecting pricing for 90 per cent mortgages to start coming down next year as well.’ 

High street lenders have started relaunching deals for first-time buyers in recent weeks. 

Halifax, Barclays and Natwest have all launched products for customers with a 10 per cent deposit. The moves came shortly after Nationwide said it would relax its criteria for these borrowers. 

Nicola Firth, chief executive of data provider Knowledge Bank, said: ‘It’s a major shift for lenders to come back to this 90 per cent lending. 

‘When that went away, it affected first time buyers and people who were pushing their budgets to buy a bigger property in their second move. 

‘Lenders also hiked rates to discourage business, but we are seeing that change now and we seem to be getting back to some sort of normality.’