Interest rates on fixed-rate mortgages have fallen to new lows, with First Direct and Barclays engaged in a price war that is pushing the cost down even for those with relatively small deposits.
The cuts come after the Bank of England’s monetary policy committee voted, yet again, to hold base rate at 0.5% – where they have now stood since March 2009. First Direct is cutting the rate on its 10-year fix from 3.49% to 2.89%, leapfrogging a 2.94% deal launched by Barclays earlier this week, which had matched the other best-buy deal from Santander, also at 2.94%.
But Barclays is the new leader for buyers wanting to fix for five years, with deals staring at 2.29%, a cut of 0.1% from a week ago. First Direct has also lopped 0.2% off its five-year deal, with a 2.59% fix until 2020.
As usual, these deals are reserved for those with a large deposit – normally 35% or more. But lenders have also begun to slash rates for borrowers able to stump up 10%. For example, Barclays has cut its five-year fix for buyers with a 10% deposit from 4.38% to 4.05%, while its two-year fix with a 15% deposit comes down from 2.63% to 2.49%.
The cuts come amid the first sign that the cooling in house price growth may be over. Halifax said that prices nationally jumped by 2% in January, taking the average to £193,130. “These improvements may indicate that the recent declines in mortgage rates, the reform of stamp duty and the first increases in real earnings for several years are providing a modest boost to the market. It is, however, too early to draw any firm conclusions,” said a spokesman.
Some experts reckon that the Bank of England will hold the base rate into 2016. The Centre for Economics and Business Research said: “The headline rate of inflation, as measured by the Consumer Price Index, fell to just 0.5% in December and, according to figures from the British Retail Consortium, food prices plunged at the quickest rate in eight years in January. This combined with further falls in the price of vehicle fuels is likely to move consumer price inflation to a new record low in January, edging the UK economy closer to deflation. The CEBR expects a brief bout of negative inflation to begin in March … As such it looks increasingly unlikely the Bank of England will raise the base rate in 2015. The CEBR now expects the MPC to start raising rates from February 2016.”
