Mortgage Market Shifts: Rate Reductions, Economic Resilience, and New Opportunities for Homebuyers

Mortgage Madness

The UK mortgage market witnessed a seismic shift this week as major lenders engaged in an unprecedented rate-cutting frenzy. TSB fired the opening salvo, slashing fixed rates for first-time buyers and home movers by up to 0.25%.

Not to be outdone, HSBC and Barclays swiftly followed suit, announcing widespread reductions across their residential and Buy product ranges. However, the crescendo came from Nationwide, launching an eye-popping 5-year fixed rate at 3.78% – a figure not seen in at least 2 years. This competitive landscape offers a glimmer of hope for prospective homeowners who have been sidelined by higher interest rates.

That said, this mortgage melee unfolds against a sobering backdrop of rising insolvencies, with 10,524 individuals entering insolvency in July 2024 – a stark 24% increase from the previous year. But given that insolvencies tend to be a lagging indicator as the impact of rate hikes have a lagged effect on the economy, a peak may be near, as evidenced by the 7% month-on-month drop.

Golden opportunities and Sterling performance

In a week of record-breaking moves, financial markets provided a spectacle of contrasts. Gold hit an all-time high, propelled by a potent trifecta of global economic forces – “falling global interest rates, massive central bank purchases, and persistent geopolitical tensions”, said Wes Wilkes, CEO of Net-Worth NTWRK.

Meanwhile, the British pound (GBP) flexed its muscles, reaching a 1-year high against the US dollar (USD) at $1.30. This sterling performance could prove a double-edged sword for the UK economy, however. On the positive side, it may help temper inflation by reducing import costs, particularly for commodities priced in dollars. On the flip side, it could also dampen the competitiveness of UK exports.

The GBP’s strength reflects diverging monetary policy expectations, with markets pricing in an almost certain rate cut by the US Federal Reserve next month, while the Bank of England is expected to hold its rates steady.

A fiscal tightrope with economic greenshoots

Public sector borrowing hit ￡3.1bn in July – the highest for the month since 2021 and ￡1.8bn above last year's figure. This far exceeded the Office for Budget Responsibility's (OBR) estimate of ￡0.1bn, and could constrain Chancellor Rachel Reeves' room for manoeuvre in the upcoming budget. Having said that, a potential upward revision to GDP growth forecasts could provide some fiscal breathing space.

On a brighter note, the latest flash PMI numbers delivered a Goldilocks scenario of higher growth and lower inflation, particularly in the services sector where input costs remained at a 3.5-year low.

Additionally, consumer confidence maintained its minus 13 reading – consistent with 2019 levels when the UK experienced healthy GDP growth and healthy inflation. This came on the back of improvements in personal finances and appetite for big purchases. Yet, this optimism has yet to fully translate into spending, possibly due to recent unfavourable weather conditions hampering retail activity.

As Fed Chair Jerome Powell signals a clear pivot on interest rates, declaring "The time has come for policy to adjust," the global economy appears poised for a significant shift. The timing and pace of rate cuts are now the key focus for markets. Nonetheless, the evolving monetary policy landscape, coupled with positive domestic economic indicators, sets the stage for a positive H2.

Swap Rates & Lender Rate Trends

Swap rates continue their downward trend as lenders continue to follow suit with rates from most major lenders now below 4%, especially if you have a significant deposit or equity. What is more important is that we're starting to see lenders make significant reductions to their standard variable rates (SVR) which in the comeing weeks could mean improved affordability assessment by lenders, making it easier to borrow more.

Residential Mortgages:

• TSB Bank made further reductions by up to 0.25% across a selected range of products including 2 & 3 year-fixed products.
• 汇丰 made further reductions across their range of products.
• NatWest introduced a range of reductions across purchase and remortgage products of upto 0.16%.
• MPowered Mortgages joined the major lenders with reductions across the 2, 3 and 5-year product range.
• Kensington Mortgages made a range of reductions and introduced some new products.
• Nationwide Building Society sent ripples across the marker with its whopping 0.26% reduction across a selected range of products.
• Molo announced that they have further reduced their rates by up to 0.20%.
• Foundation Home Loans introduced rate reductions across all of their core residential range.
• Halifax made rate reductions to selected mortgages across their remortgage products.
• Accord Mortgages Limited made reductions across their residential product range including by upto 0.35% on 2-year fixed products.

Buy-to-Let Mortgages:

• Virgin Money introduced new buy-to-let rates across all loan-to-value (LTV) brackets and reduced selected rates with a ￡995 fee by upto 0.15%
• The Mortgage Works reduced rates by upto 0.10% across their products for new customers.
• Accord Mortgages Limited made changes to selected changes across their product range with reductions of upto 0.20% for 2-year fixed rates.
• Kensington Mortgages made a range of reductions and introduced some new products.
• Keystone Property Finance announced that they have reduced rates across their range by up to 0.15%.
• Fleet Mortgages made changes to the HMO product by reducing rates by upto 0.35% to their 5-year 3% fee product whilst introducing a new 2-year fixed product.

Lender Spotlight: April Mortgages' Increased LTI Caps

At The Mortgage Stop, we are always on the lookout for mortgage products that provide our clients with greater affordability and flexibility. This week, we are excited to highlight April Mortgages , who have recently increased their Loan to Income (LTI) caps, making homeownership more accessible for a broader range of borrowers.

Whether you're a first-time buyer, moving home, or seeking a like-for-like remortgage, April offers a path to increased affordability.

Key Features of April's Increased LTI Caps

• Up to 6x Sole and Joint Income: April now offers loans up to 6 times the borrower's income, providing a substantial increase in borrowing power for those looking to purchase or remortgage a home.
• Certainty and Flexibility: April combines the security of longer-term fixed rates with the flexibility of enhanced capital raising options. Borrowers can take advantage of further borrowing for home improvements or gifting purposes.

Benefits

• Fixed Rates from 5 to 15 Years: April offers fixed rate options that provide long-term stability, allowing borrowers to plan their finances with confidence over a period that suits their needs.
• No Early Repayment Charges (ERCs) When Moving Home: Borrowers can enjoy the flexibility of moving home without being penalised by early repayment charges.
• Automatic Rate Reduction: April rewards responsible borrowers by automatically reducing the interest rate as the loan-to-value (LTV) ratio decreases, helping to lower monthly payments over time.

April Mortgages’ decision to increase LTI caps to 6x income is a game-changer for those looking to boost their affordability and achieve homeownership with greater ease. At The Mortgage Stop, we are here to keep you informed about the best mortgage products available.

Until Next Week

As the UK mortgage landscape evolves, recent rate cuts by major lenders offer a promising opportunity for homebuyers and those looking to remortgage. Despite a challenging economic backdrop, with rising insolvencies and public sector borrowing, there are signs of resilience and optimism. The strength of the British pound, easing inflationary pressures, and the positive signals from the services sector all point towards a stabilising economy.

At The Mortgage Stop , we remain committed to helping you navigate these dynamic conditions and find the best mortgage solutions tailored to your needs. Now more than ever, understanding your options and acting decisively could unlock significant savings and opportunities.

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Your home may be repossessed if you do not keep up repayments on your mortgage. You may have to pay an early repayment charge to your existing lender if you remortgage. Not all Buy to Let Mortgages are regulated by The Financial Conduct Authority.