Traditional houses line a street in Muswell Hill, a suburb north of London, with Canary Wharf visible on the horizon.
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LONDON — Britain’s biggest lenders have started cutting mortgage rates after the Bank of England cut interest rates for the first time in more than four years, a sign that financial pressures on households are easing.
HSBC, Santander Bank of America and Nationwide were among the banks that cut borrowing costs following the Bank of England’s decision on Thursday to cut interest rates to 5% from a 16-year high of 5.25%.
Homeowners with tracker mortgages, which are linked to the bank’s base rate, will be the first to benefit from the savings. BarclaysSantander, Metro Bank, RoyceHalifax, Nationwide and HSBC all cut their repayment costs by 25 basis points immediately following the Bank of England’s announcement.
Borrowers on tracker rates or standard variable rates that usually apply at the end of a fixed-rate agreement can also get discounts. From September, Santander will reduce its SVR from 7.50% to 7.25%, Lloyds from 7.25% to 7.0% and Halifax from 8.74% to 8.49%.
Tracker and SVR mortgages remain a relatively niche part of the UK mortgage market due to their volatility: of the 8.39 million mortgages outstanding as of December 2023, 643,000 were tracker mortgages and 624,000 were SVR mortgages, according to industry body UK Finance.
But analysts say it may not be long before the rate cuts trickle down to the 6.93 million households with fixed-rate mortgages. Indeed, last week Nationwide became the first lender since April to offer a five-year fixed rate deal below 4% in anticipation of a shift in Bank of England monetary policy.
“[Borrowers can] “We expect to see further price improvements in fixed rates as lenders continue to fight hard to gain share in a competitive market,” David Hollingworth, associate director at L&C Mortgage, said in an email.
Laura Suter, director of personal finance at AJ Bell, agreed that Thursday’s decision “signals the start” of a rate-cutting cycle from the Bank of England and other lenders “will likely follow suit”.
UK property market booming
While the initial savings for homeowners are likely to be minimal – on average around £28 a month for tracker rate homeowners, according to Hargreaves Lansdown – the savings are expected to have a ripple effect on the UK housing market by boosting confidence that the UK is emerging from the cost of living crisis.
“This could persuade more buyers that it’s the right market to take the plunge,” said Sarah Coles, head of personal finance at Hargreaves Lansdown.
Savills research director Emily Williams said she expected market activity to pick up in the autumn as more buyers arrived, leading to total price growth of 2.5 per cent this year.
Still, the Bank of England’s narrow 5-4 vote to cut rates leaves the path of future rate cuts unclear and the central bank has warned it will proceed cautiously, leading some analysts to warn that it may be some time yet before significant savings flow through to homeowners.
“The division of opinion among rate decision makers suggests that this cut was fairly hawkish and this policy easing is unlikely to signal the start of a larger cycle of rate cutting,” Suren Till, ICAEW’s director of economics, said in an email.
