Santander mortgage saves average homeowner £2,400 a year but may be ‘last chance’ | Personal Finance | Finance
That’s a huge blow for 1.5 million homeowners whose fixed rates expire this year, but it’s not as bad as it first seems. Lenders have been cutting mortgage rates and cash-strapped homeowners could still save thousands by shopping around for a best buy deal at renewal.
Until last week, analysts were hoping that Bank of England policy makers would cut interest rates six times in 2024, reducing base rate from today’s 5.25 percent to just 3.75 percent by year end.
Those hopes now look overblown as the surprise uptick in inflation presents a potential “stumbling block” for mortgage rates, said Chris Sykes, technical director at broker Private Finance.
Yet the impact may not be as bad as initially feared, he said. “Despite some early volatility, expectations of interest rate reductions don’t appear to have moved sharply.”
More than 50 mortgage lenders have cut residential mortgage rates since the start of the year, taking the average mortgage rates below six percent for the first time since last June.
Average two and five-year fixed rate mortgages now charge 5.93 percent and 5.55 percent respectively, according to Moneyfacts. However, best buy rates are even lower, especially at low loan-to-values (LTVs).
On Thursday, Santander cut its two-year fixed rate mortgage from 4.55 percent to just 4.10 percent, with a £999 product fee. This deal is available up to 60 percent LTV.
The average home was worth £287,105 in December, according to latest Halifax figures. A homeowner remortgaging to the average two-year fixed rate of 5.93 percent would pay £1,103 a month.
The Santander deal to 60 percent LTV would reduce that £919 a month. That’s a saving of £184 a month, which adds up to £2,160 over a year.
Santander has also slashed its two-year fix to 75 percent LTV, from 4.60 percent to 4.15 percent.
And it has cut its 85 percent fix from 4.79 percent to 4.52 percent. This would cut the average owner’s monthly repayment from £1,562 to £1,359.
Thats a saving of £202 a month or £2,424 a year.
Mortgage lenders have embarked on a rate war in recent months, based on the assumption that base rates will soon peak and fall.
Last week’s disappointing inflation figure means that rates may flatten out for a while and today’s deals may be last chance to save money for a while, Sykes said. “Mortgage rate reductions will slow and the market will likely be less volatile over the coming weeks.”
Adam Oldfield, chief revenue officer at Phoebus Software, said that despite last week’s inflation disappointment, 2024 has been largely positive for the housing market so far. “House prices haven’t taken the expected tumble, unemployment isn’t going up and wages are still rising ahead of inflation. It’s definitely not all bad news.”
North London estate agent Jeremy Leaf reckons the worst of the house price volatility is now behind us. “We anticipate firming prices and more sales agreed than we dared to expect only a few months ago.”
House prices actually rose by 1.7 percent in 2023, according to Halifax figures, boosted by a 1.1 percent jump in December.
However, figures vary, with rival Nationwide reporting a price drop of 1.8 percent over the same period.
Things might have been a lot worse given the cost-of-living crisis, high interest rates and falling property transactions, said Quilter’s mortgage expert Karen Noye, who is cautiously optimistic for 2024. “Reduced transaction levels have fed into a healthy competition between lenders battling for business.”
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If inflation and mortgage rates do fall as spring approaches, this could lure more buyers back into the market, Noye said. “Interest rate cuts are widely expected to materialise as we move further into 2024 and those looking to secure a fixed rate mortgage could find that deals become more palatable.”
A brighter outlook could encourage potential sellers to market their properties, boosting choice and transactions, said Tomer Aboody, director of property lender MT Finance. “Better sentiment is expected with encouraging prospects for the year ahead.”
Mortgage rates may be creeping downwards but they are still far higher than just a couple of years ago, when two-year fixed rates charged two percent and in some cases less.
We may never return to the era of the ultra-low cost mortgage, and that may be a good thing, too given how they inflated house prices.
Yet this means that anybody whose mortgage does expire this year will still pay hundreds of pounds more for their new one, even if the BoE does cut bank rate. It could still be a tough year for many.