‘Meaningful relief for borrowers’ as banks prepare to cut mortgage rates

Santander is reducing mortgage rates being offered to borrowers with smaller deposits from Thursday, raising hopes that similar changes will be made more widely across the market.

The bank said it is able to pass on a reduction in borrowing costs following a fall in swap rates, which are used by lenders to price mortgages.

Meanwhile, TSB is also poised to reduce some of its mortgage rates from Friday.

Looking at Santander’s reductions, they include reducing two-year fixed first-time buyer deals for people with deposits of 5% to 15% by up to 0.28 percentage points.

Selected 5% to 15% deposit five-year fixed first-time buyer rates will reduce by up to 0.17 percentage points.

Among the changes, Santander is reducing the rate on its 2% deposit five-year My First Mortgage deal by 0.10 percentage points to 5.85%. The deal has £250 cashback.

Reduced rates will also be offered to home movers, including Santander cutting 5% to 40% deposit two-year fixed rates by up to 0.28 percentage points.

Ben Merritt, head of mortgage trading at Santander UK, said: “It’s natural that those looking to buy, move or remortgage in the current market may be feeling uncertain about what they should do next.

“While the recent trend has been to see rates increase, we’re pleased that we’re able to pass on a reduction in borrowing costs following a fall in swap rates.

“While no one can accurately predict where the market will go next, taking professional advice on what’s possible from your lender or an independent broker can help borrowers to make a decision based on the current market and what any movements mean for them specifically.”

Hina Bhudia, a partner at Knight Frank Finance, said: “This marks the first meaningful relief for borrowers since the conflict in the Middle East began and should signal the start of a broader market repricing lower.

“Swap rates have eased following the initial ceasefire announcement and are now out of sync with fixed-rate mortgages, giving lenders scope to reduce pricing. Larger lenders such as Santander typically set the tone, with others likely to follow.

“Beyond the very short term, there remains significant uncertainty over the trajectory of mortgage rates, given the ongoing volatility in the Middle East. In this context, borrowers should consider acting on current reductions by locking in a deal, with the option to renegotiate if borrowing costs fall further.”

TSB has said that from Friday, rates are decreasing on two-year fixed house purchase mortgages by up to 0.45 percentage points.

Some other TSB mortgage rates are increasing, including on product transfer deals and additional borrowing.

According to financial information website Moneyfacts, the average two-year fixed-rate homeowner mortgage on the market has increased from 4.83% at the start of March to 5.89% on Wednesday morning.

The average five-year fixed homeowner mortgage rate has risen from 4.95% at the start of March to 5.77% on Wednesday morning.

Both average fixed rates have remained unchanged compared with Tuesday, according to Moneyfacts.

Nicholas Mendes, mortgage technical manager at John Charcol, said swap rate movements in the past few days have been “meaningful”, adding: “After what has been a very turbulent few weeks, this is probably the first point where the market feels a little more settled.

“It gives lenders a chance to make pricing moves without the same immediate fear that sudden market swings will knock funding costs or service levels back off course.”

He added: “Other lenders have also made reductions over the last couple of days, which shows there is appetite to stay competitive as others prepare to make similar changes.

“The important caveat is that this is still selective, not broad based.”

Mr Mendes said: “For remortgage borrowers, and especially anyone coming off a fixed rate in the next three to six months, this is not the point to sit back and wait.”

He said borrowers could secure a rate early and then keep it under review, adding: “In a market like this, the cheapest option today may not still be the cheapest option in a few weeks’ time, so keeping that choice open matters.

“This is where a broker can add real value, not just by securing a deal now, but by continuing to watch the market and moving quickly if lenders keep trimming rates.”

Aneisha Beveridge, research director at Connells Group, said: “If recent falls in swap rates translate into more sustained mortgage pricing relief, it would help restore confidence and reduce some of the uncertainty that’s crept into decision making, allowing activity to stabilise and momentum to rebuild as the year progresses.”