Mortgage price war breaking out as rates cut

Metro Bank, Halifax, Barclays and Nationwide Building Society as well as HSBC, Virgin Money, Skipton Building Society and Norwich and Peterborough Building Society are among those who have sharpened up their ranges.

The tussle for homeowners’ business has seen several lenders once again drop their rates below three per cent for people looking for a five-year fixed rate mortgage.

Meanwhile, Virgin Money has taken the unusual step of launching a new range which allows people to fix in for one year longer than the usual five-year deals and protect themselves against the prospect of interest rates rising for a prolonged period.

Financial experts have claimed the moves have been sparked by the anticipated rise in interest rates in 2015. Another possible explanation for the new price war is that some lenders may have hoarded cheap cash which they received as a result of the Funding for Lending scheme (FLS).

The scheme was launched in the summer of 2012 and helped to ramp up competition in the mortgage market by allowing lenders to get access to cheap funding, on condition that they passed on the benefits of this to borrowers. The initiative was re-focused in 2014 away from households and towards helping businesses.

Rachel Springall, a spokeswoman for Moneyfacts, said: “While the FLS was withdrawn for household lending in January, there is still ongoing competition in the market.

“Providers who have under-lent will need to meet their year-end lending targets, therefore one of the quickest ways to boost business is to reduce mortgage rates.

“With the murmurings of a base rate rise in 2015, remortgage customers sitting on a variable rate will be considering their options, as well as first-time buyers who still have the Help to Buy scheme as an option to get on to the property ladder.”

David Hollingworth, head of communications at London and Country Mortgages, claimed that swap rates, which lenders use to price their loans, have been on a downward path.

He said: “Swap rates have been falling back and it seems the markets feel it’s going to be too soon for the base rate to rise before the end of this year now.

“So you’ve got slightly reduced funding costs for lenders going into the autumn, when traditionally, you see lenders trying to come back strongly into the market.”

He suggested that some businesses may be trying to meet end-of-year lending targets, and so will be dropping their rates now to encourage new applications, which will take a while to process.

Mr Hollingworth also suggested the “improved appetite” for lending has been amplified by lenders now having got to grips with new, stricter mortgage lending rules which came into force at the end of April.

The market saw some disruption earlier this year as lenders’ systems adjusted to the new rules, which force them to probe mortgage applicants in more detail about their borrowing habits. The number of mortgage approvals dipped around that time before heading back upwards.