UK Mortgages Cut by Lenders as House Prices Climb

Last March proved to be HSBC’s strongest month ever for mortgage completions. The bank completed more mortgages than any month since it began to offer home loans almost half a century ago. During the month, more than 3,000 first time buyers completed mortgages. Further, according to the Bank of England, net mortgage borrowing reached a record £11.8 billion, the strongest figure since records started in April 1993. This all came off the back of an extended tax break on March 3^rd.

All this prosperity has intensified competition between banks in the booming UK housing market. To deal with this competition, many banks are targeting wealthy home buyers by cutting rates on multi-million pound mortgage deals.

The Financial Times reported that this week, Barclays trimmed its rates on a range of mortgages for those seeking to borrow between £2m and £10m. For those with a deposit of at least 40 per cent, it has a two-year fixed rate deal at 1.09 per cent, with a £1,999 fee. Other reductions in HSBC UK’s range include a two-year 10% deposit deal at 2.99%, down from 3.09%, with a £999 fee.

A tweet from the Ministry of Housing, Communities and Local Government revealed that “prospective new homeowners can now apply for mortgages that only require a 5% deposit as major lender are now offering 95% mortgages under the Government-backed mortgage guarantee scheme.” HSBC, Halifax and Santander have also reduced interest rates for multimillion pound loans since the beginning of May.

Reductions can also be seen in large loan transactions with a high ratio of loan value to 75% or 80%. Although recent mortgage rate cuts have been as small as two basis points, such differences can lead to significant savings in the millions of pounds for mortgages.

As house prices continue to rise with demand, there is speculation as to whether this is a temporary climb. Many lenders are worried that the market is overly enthusiastic and that this optimism and demand will soon run out. Others believe that this recent demand for housing reflects a deeper, persistent force within the British society and that the housing prices will not fall to pre-market levels when the tax-incentive is gone. It appears that currently, the market is taking the side of the optimist.