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First-time buyers are typically spending £400 a month more on mortgage payments than they were at the time of the last general election, recent figures from Rightmove show.
Homeowners and buyers can finally see the light at the end of the tunnel of mortgage misery when two of Britain’s biggest lenders cut their mortgage rates this week.
Borrowers will soon be able to breathe a sigh of relief as rates are falling after years of painfully high borrowing costs that have increased their repayments by hundreds of pounds each month.
Three of Britain’s biggest lenders have announced rapid rate cuts.
HSBC is making a major series of cuts to its residential and buy-to-let mortgage deals, details of which will be revealed this morning.
First-time buyers are typically spending £400 a month more on mortgage payments than they were at the time of the last general election, recent figures from Rightmove show.
Barclays took action yesterday, cutting rates on its residential mortgages by up to 0.25 percentage points for buyers with a 40 per cent deposit.
This follows NatWest cutting rates for buyers of remortgaged homes on Friday.
Brokers say they expect more lenders to follow suit, amid growing competition.
Households could see a wave of cuts in the coming weeks as the market reacts to an imminent Bank of England base rate cut, expected later this summer.
So if you’re planning to buy a home or need to remortgage, should you lock in your rate now or wait for more cuts later this year?
Better rates are on the horizon
Mortgage rates have remained stubbornly high this year, adding to the pain of borrowers.
First-time buyers are typically spending £400 a month more on mortgage payments than they were at the time of the last general election, recent figures from Rightmove show.
Reimbursements have risen 61 per cent to £1,075 a month on average, from £667 in 2019. Meanwhile, wages have only increased by 27 per cent.
And this month’s base rate decision was another blow to homeowners who desperately need immediate relief.
The Bank of England’s Monetary Policy Committee voted to keep the base rate at 5.25 per cent, prolonging the mortgage pain for homeowners and homebuyers.
Payments: If rates fell to 4.5% at the end of the year, borrowers with a £150,000 25-year mortgage with a typical two-year fixed rate would pay £43 a month less.
But positive inflation figures released last week have sparked fresh hopes that a base rate cut could happen as soon as August. It would be the first cut since March 2020.
Consumer price increases fell to 2 percent in the year to May, in another reassuring sign that mortgage cuts will soon follow.
The last time inflation was at 2 per cent in July 2021, the average two-year mortgage rate was 2.55 per cent and the five-year average was 2.78 per cent, according to rate examiner Moneyfactscompare. Yesterday, the two-year average rate stood at 5.96 percent and the five-year rate was 5.53 percent.
David Hollingworth, of brokerage L&C Mortgages, says the cuts at HSBC and Barclays are good news for borrowers, even if they do not yet kick off an all-out price war.
If rates fell to 4.5 per cent by the end of the year, borrowers with a £150,000 25-year mortgage with a typical two-year fixed rate would pay £43 a month less, or £518 less a year, figures show from L&C Mortgages.
Those with mortgage loans of £300,000 would see their comparable payments reduced by £86 a month, or £1,035 a year.
Is it better to fix it now or stop shooting?
Hundreds of thousands of homeowners will be forced to remortgage over the next six months, official figures show.
Those who need to lock in a new rate today face a difficult decision since rates have not yet dropped. Households may be tempted to revert to a standard variable rate mortgage when their home loan comes to the end of its term in the hope that rates will fall substantially in the coming months.
But Dimora Mortgages’ Jamie Lennox says lenders are already considering a possible summer base rate cut to their mortgage rates.
It says: ‘Don’t make the mistake of thinking rates will fall dramatically once the base rate cut occurs. “What we are seeing now is an early reaction to the base rate cut, as lenders adjust the price of their deals in advance.”
There’s no rush: Households may be tempted to return to a standard variable rate mortgage when theirs reaches the end of its term in the hope that rates will fall substantially in the coming months.
Standard variable rates tend to be much higher than those offered for fixed rate products. The average rate as of June 1 was 8.18 per cent, says Moneyfactscompare.
Rates this high mean homeowners who wait before closing two- or five-year deals could be left worse off, even if rates fall at the end of the year.
Calculations for Money Mail by L&C Mortgages show that borrowers who today fix their rate for two years at 5 per cent would still be better off than if they switched to a variable rate and postponed fixing until rates fell.
A homeowner with a £150,000 25-year mortgage at a standard variable rate of 8.74 per cent for six months and then chooses a fixed rate deal of 4.5 per cent over six months would spend £22,480 on their mortgage loan for two years.
The same borrower accepting a two-year 5 per cent solution today would pay £21,045 over two years, £1,435 less than if they had waited.
How long should you lock yourself up?
There is no one-size-fits-all approach to how long borrowers should maintain a fixed-rate agreement.
It will depend, for example, on the household’s disposable income, likelihood of moving and risk aversion, Lennox says.
The broker adds that he expects mortgage rates to be lower within two years. The latest forecasts from Capital Economics show the base rate will fall to 3 percent by the end of 2025.
This means you would be better off opting for a two-year solution so you can remortgage when rates are lower.
If true, anyone opting for a five-year solution could miss out on lower interest payments if rates rise again in five years.
Nicholas Mendes, of broker John Charcol, says: “For those looking to remortgage soon, or who want to avoid being locked into a higher rate deal for longer than necessary, locking in a two-year fixed rate will offer more flexibility. “. But if you value long-term stability, a five-year fixed rate would be your ideal option.’
Justin Moy, of EHF Mortgages, adds: “It is easy for external influences to change mortgage rates quickly, so early involvement is vital to ensure borrowers enjoy the cheapest options to remortgage or renew.”
L.evans@dailymail.co.uk
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