Mortgage rates hit a record low in April, with the Yorkshire Building Society announcing a rate of 0.89% over a two-year period.
As a result, many are pointing towards a ‘price war’ between lenders. Digital start-ups such as Atom Bank, along with likes of Sainbury’s Bank, which re-entered the market after a 13-year absence, are also contributing to a heightened level of competition within the mortgage market.
Atom briefly offered a five-year fixed-rate priced at 1.29% – described by many as “the UK’s best-every home loan.” However, the bank withdrew the deal after just one week due to “huge demand.”
Meanwhile in May, HSBC launched a five-year fixed rate of 1.69%, believed to be the lowest five-year deal on the market. At the time, David Hollingworth from L&C Mortgages commented: “This is yet another signal that the mortgage market is more competitive than ever, and lenders are scrapping it out to attract business, whether it’s from those buying their first homes, moving houses or looking to switch to a better deal.”
According to Hollingworth, the big winners are most definitely borrowers. He noted that to “stand out from the crowd”, lenders are “offering more and more eye-catching deals.”
With inflation at a four-year high and Brexit and the General Election looming large, the lower rates would seem to be providing some respite to weary consumers. Despite this however, recent data from L&C revealed that 1.4 million UK households are struggling to pay their mortgage, with 2.6 million people regarding their monthly mortgage payments as too high.
As stated by Hollingworth, “millions are sitting on the wrong deal.” CML’s research revealed that 36% of homeowners are still on a standard variable rate mortgage and over a million households were wasting £2.78bn through remaining on the wrong mortgage deal.
Lenders are also feeling the pinch. Earlier in May, Nationwide announced an annual fall in profits, which it put down to a decision to “protect savings rates” after the Bank of England base rate was set at 0.25%. As the FT noted however, it is likely that “increasing competition in the mortgage market has further hit profit margins.”
Fears over a weakening housing market may also have a part to play in the number of low-interest deals currently on the market.
In its April data, the Council of Mortgage Lenders noted a slight slowing in gross mortgage lending. Its May 2017 Market Commentary stated that: “Transactions continue to be driven by first-time buyers, as all other parts of the market remain weaker than this time last year.”
The announcement that the Office for National Statistics has revised down its GDP growth figure for the first quarter of 2017 to 0.2% will do little to appease lenders’ concerns over weakening demand.