Has an interest rate pricing war started?
As Nationwide launch their lowest rate deals in 8 months, are we witnessing the start of an interest rate pricing war.
Mortgage lenders have been cautious for the last 14 months or so. The disastrous mini budget from Kwasi Kwarteng contributed to runaway inflation, rising interest rates and a cost of living crisis. All of this has made pricing a mortgage product for market extremely difficult. Some lenders went lower than others and were subsequently swamped with applications causing their systems to crash. Others priced much higher and failed to offer competitive deals to either their existing customers or new ones. However, with inflation now under control, house prices down year-on-year, and more confidence in the markets, some lenders have started what appears to be an interest rate pricing war.
Nationwide have released a 3.85% 5 year fixed rate mortgage for those with at least a 40% deposit. It has a product fee of £1,499. This marks their lowest new customer rate in the last 8 months. Coming on the back of cuts from up to 0.81% from their previous range. Other lenders have followed suit with Barclays also cutting up to 0.60% from their product range.
Competing mortgage lenders will not want an interest rate pricing war. However, they will have to match or beat Nationwide if they want to bring business through the door. If this is the case, we may see rates drop still further as they scrap for headlines and customers. Alternatively, Nationwide’s competitors could be satisfied to simply let Nationwide have their slice of the pie. Instead picking up customers when Nationwide invariably have to increase their costs to curb business saturation.
Should I grab one of these deals now?
If you need to secure a good deal now and qualify for the lower rates then be quick. Nationwide will show up as the market leader on a number of comparison metrics. Soon they will be worried about the amount of business they are writing on these deals. If a lender feels they are over exposed, their first response is to increase rates. By pricing themselves out of the market they can recover until business levels have calmed down.
This is especially true because Santander along with a few other lenders have actually priced their ranges in an upwards direction recently. Take some sound mortgage advice from a broker so that you can be sure of all of the options and not just the headline grabbing deals. The relatively high product fee attached to the 3.85% deal means that those with lower balances may be better off finding a deal with a slightly higher interest rate but low or no fees.
Will this trend of rate drops continue?
For a little while yes. The largest lenders won’t want to let Nationwide have it all their own way. Expect to see a few select deals crop up that challenge the top of the comparison tables. These eye-catching deals will likely be in high demand and won’t hang around for long. Until the Bank Of England decide to drop their base rate you can expect to see lenders dipping in and out of best deals chart instead of mounting a sustained drive to lower rates and keep them low.
It is estimated that about 1.6m cheap fixed-rate deals are due to expire in 2024. These borrowers still are typically still facing a large jump up in mortgage repayments when they switch to a new product. 2024 will be key to those borrowers securing a good deal. At the moment the signs are that its damage limitation for these customers as things could be a lot worse.
Check out our guide on how to remortgage like a Mortgage Pirate if you would like to prepare well and save money.
Post compiled by Grant Carpenter CeMAP, CeFA – 15 years of regulated mortgage advice.
Please note that the content listed within this remortgage guide is purely for information purposes only and does not constitute advice.
