How Barclays, Santander and HSBC cutting mortgage rates will impact you

A number of mortgage lenders have started 2024 by announcing a fall in rates for customers.

After years of rising interest rates, Barclays and Santander are latest banks to bring down rates on many mortgage products.

It comes a week after Halifax and HSBC also brought down the cost of borrowing to buy or remortgage a home.

Banks will be hoping the rates entice more customers ahead of an expected drop in the Bank of England base rate this year.

The base rate, which determines the interest rates charged by banks, stands at a near 16-year record at 5.25 per cent, but could be brought down on 1 February with the UK economy showing signs of recovery.

Here we look at what the changes in mortgage interest rates mean for customers:

Barclays has said it is cutting mortgage rates by up to 0.5 per cent including a fall in the rate on its two-year fixed mortgage from 4.62 per cent to 4.17 per cent, with a fee of £899.

Santander is bringing down the rates on some of its mortgage rates to below 4 per cent. The company is also launching a five-year fixed rate loan at 3.89 per cent, with a £999 fee, for those remortgaging and 3.94 per cent rate for people buying for the first time with a 40 per cent deposit.

Last week, HSBC introduced a five-year remortgage deal of 3.94 per cent for homeowners borrowing up to 60 per cent of the property’s value. Halifax has also cut its two-year mortgage rate to 4.59 per cent, with a £999 fee.

Other lenders such as Lloyds Bank Group, First Direct and Leeds Building Society have lowered mortgage rates.

Well, it should make it easier to get on the ladder for those saving deposits toward their first home. Just half a per cent can make a big difference to mortage repayments - but customers should be aware that many of the best deals are only available to those with a large deposit against the value of the home.

Some of the best products can also come with upfront fees.

But, just to give an example, a person buying a £200k flat in Birmingham, with a £40k deposit - and looking to get a 25-year mortgage:

The Barclays 2 year fixed is currently 4.62 per cent, which would cost £900 a month. But from 10 January, when that rate drops to 4.17 per cent, it would cost £860 a month - a saving of £40 a month, or £480 a year.

The terms of the product state that the deposit must be 40 per cent or higher.

Just like for homebuyers, a drop in interest rates is good news for those remortgaging - however, depending when they first mortgaged their homes, they could still see a big rise in monthly repayments at the expiry of their fixed rates.

So, to give an example, a person remortgaging a £300k house in Manchester with £100k left on their mortgage - and looking to remortgage on a new 25-year term.

Remortgaging to Santander’s five-year fixed rate, currently at 4.71 per cent, would currently result in monthly repayments of £568 a month, but from 10 January, under the new 3.89 per cent rate, it would cost £522 a month, down £46 a month or £542 a year.

It should be added that the product comes with a £999 fee - and monthly repayments could see be significantly up from a previous fixed rate deal from a few years ago.

As expected, the mortgage experts say the lowering of mortgage rates is good news for people buying or remortgaging their homes as it should lead to smaller monthly repayments.

And what’s better, some are predicting rates will fall even lower with lenders continuing to compete for customers with the Bank of England base rate forecast to drop.

Danny Belton, head of lending at Mortgage Advice Bureau said: “Whilst we have started 2024 positively with a few rate reductions, by May we could see the first base rate cut, assuming conditions have continued to improve.

“This is unequivocally good news for the millions of homeowners who will be looking to remortgage or buy this year, as the situation for borrowers is certainly improving.

“But the lowest rates, for the moment, will mostly be for those with a larger deposit. For first time buyers, and those with a lower amount of equity built up, rates remain high.

“However, as the year progresses, we’re hopeful that lenders will start to reduce these so that first time buyers can make homeownership a reality too.”

Halifax and HSBC cut mortgage rates last week, Barclays and Santander will slash rates on 10 January.

A number of lenders are yet to reduce rates - so expect more announcements in the coming days.