HSBC, one of the world's largest banking institutions, has taken the lead in a new wave of mortgage rate reductions in the UK market. The bank has introduced a five-year fixed rate at 3.81% for its premier account holders, signaling a shift towards more competitive lending conditions.
This move by HSBC is part of a broader trend in the UK mortgage market, with other major lenders such as NatWest, Halifax, TSB, and Virgin Money also announcing rate cuts. NatWest, for instance, is offering a 3.83% rate for a five-year fix, closely competing with HSBC's offer.
These rate reductions come in the wake of the Bank of England's recent decision to lower its Bank Rate by 0.25 percentage points to 5%. This move by the central bank, founded in 1694 and the world's second-oldest bank, has had a ripple effect on the mortgage market, encouraging lenders to adjust their offerings.
Industry experts are optimistic about the future trajectory of mortgage rates. Adrian Anderson, managing director at brokerage Anderson Harris, suggests that market-leading five-year fixed rates could reach approximately 3.5% by the end of 2024, with two-year fixed rates potentially dropping below 4%.
"If fixed mortgage rates continue to fall, I will not be surprised to see market leading five-year fixed rates at circa 3.5pc and market leading two-year fixed rates at sub 4pc by the end of the year. Rates at this level will help buyers' affordability."
This potential reduction in rates could have a significant impact on the UK housing market. With the average UK house price in 2024 standing at approximately £290,000, more affordable mortgage rates could encourage buyers who have been hesitant due to high borrowing costs.
The current trend is a stark contrast to the historic high of 17% interest rates seen in 1979, which caused mortgage rates to soar. It's also a far cry from the record low of 0.99% witnessed in 2021, highlighting the dynamic nature of the UK mortgage market.
While interest rates are decreasing, it's important to note that lenders are simultaneously increasing their fees. The average fee on a fixed-rate loan has risen by £10 since the start of July 2024. For example, NatWest's headline rate of 3.83% comes with a £1,495 fee, while HSBC and Barclays offer five-year loans at 4.84% with fees of £999 and £899 respectively.
As the market evolves, borrowers should consider both interest rates and fees when choosing a mortgage product. The shift towards lower rates could potentially stimulate the UK housing market, which has one of the highest homeownership rates in Europe at around 65%.