Best UK mortgage deals of the week

Pedro Goncalves

Mortgage rates eased slightly amid hopes of an interest rate cut in August, but prospective homeowners are still struggling to find a deal they can afford, with more taking loans well into retirement.

The average rate on a two-year fixed deal this week stood at 5.99%, same as last week, while rates for a five-year deal came in at 5.45%, lower last week's 5.49%, according to figures from Uswitch.

The Bank of England (BoE) has left UK interest rates on hold at a 16-year high of 5.25% for a seventh consecutive time but markets are hoping for an August cut.

With fewer BoE interest-rate cuts now expected in 2024 and with an impending announcement on interest rates, many of the big lenders kept their offers unchanged.

"This week we’ve seen lenders respond to their growing expectation of a bank rate cut in August, and likely the election results, with a host of rate cuts across two- and five-year products,” Kellie Steed, Uswitch's mortgage expert, told Yahoo Finance UK.

"While these have not been significant enough yet to influence the overall average rates, we can see that across the big six lenders, the average two-year fixed rate has fallen by just over one percentage point and the average five-year fixed deal by 0.08%.

"As the month progresses we’re likely to see more lenders follow suit, with Nationwide and Skipton both announcing cuts as high as 0.3% and 0.33% respectively to both their residential purchase and remortgage ranges today,” she added.

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Meanwhile, young homebuyers are being forced to gamble with their retirement prospects by taking on ultra-long mortgages.

In the last three years, researchers have noted a surge in mortgage terms that see homeowners locked into mortgages running beyond the state pension age. This is particularly rife among those under 30, data from the BoE highlighted.

However, there might be some sign of relief as slowing inflation is likely to be well-received by homeowners and buyers pinning their hopes on a summer interest rate cut.

Inflation has fallen back to the Bank of England’s 2% target for the first time in nearly three years.

Borrowers have long said goodbye to HSBC’s (HSBA.L) 3.99% for a five-year deal. The cheapest deal at the lender’s table is now 4.22% for five years.

Looking at the two-year options, the lowest rate comes in at 4.67%, with a £999 fee.

Both cases assume a 60% loan-to-value (LTV) mortgage, meaning buyers need to have at least 40% for a deposit.

The lender offers 95% LTV deals, meaning you only need to save for a 5% deposit. However, the rates are much higher, with a two-year fix coming in at 5.94% or 5.39% for a five-year fix.

This is because the rate someone can get will be determined by their financial situation and the size of their deposit. The larger the deposit, the lower the LTV, allowing buyers to access better deals because lenders consider them less risky.

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NatWest (NWG.L) has some of the cheapest deals on the market but no offer comes close to its previous 3.94% offer.

The best rates prospective borrowers can now get is an online-only deal offering 4.26% for a five-year deal with a £1,495 fee, assuming a 60% LTV. However, after five years the rate almost doubles to 8.24%.

It offers 4.35% for green mortgages — this product is available for properties with an energy performance certificate (EPC) rating of A or B, where the fee drops to £995.

For a two-year fix, the cheapest a customer can get is 4.78% online, with a product fee of £1,495.

Santander (BNC.L) has also moved away from its under 4% mortgage with a five-year fix coming in at 4.20%, assuming you have a 40% deposit.

A 60% LTV two-year fixed rate with a £999 purchase fee comes in at 4.64%. A 75% LTV two-year fixed rate with a £999 purchase fee is priced at 4.72%. This is the lowest two-year fix on the market for those buying with a 25% deposit.

Last week, Santander implemented a raft of rate cuts across its fixed rate deals by up to 0.16 percentage points, aimed at home buyers.

“This move from Santander has the potential to ramp up the rate battle between the UK's biggest lenders”, Stephen Perkins, managing director at Yellow Brick Mortgages, told Newspage.

"More cuts are now likely ahead of the expected base rate reduction in August. Things are really hotting up now in the mortgage market."

Barclays (BARC.L) used to have the cheapest five-year deal for prospective homebuyers with a 40% deposit (60% LTV) that came in at 4.17%, with an £899 fee. No more — the lender has hiked the rate for that deal to 4.23%, where it has been for the past weeks.

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When it comes to two-year mortgage deals, the lowest you can get is 4.68%.

At Nationwide (NBS.L), five-year purchase fixed rates start from 4.26%, with a £999 fee for borrowers with at least a 40% deposit.

Assuming a £300,000 house where you need to borrow £180,000, this puts monthly payments at £1,014.

The lender has improved its deals across a number of fixes. For first-time buyers it has implemented reductions of up to 0.09% across two and three-year fixed rate products up to 85% LTV, including:

  • Three-year fixed rate at 60% LTV with a £999 fee is 4.65% (reduced by 0.09%)

  • Three-year fixed rate at 75% LTV with a £999 fee is 4.75% (reduced by 0.04%)

  • Two-year fixed rate at 60% LTV with a £1,499 fee is 4.75% (reduced by 0.04%)

Halifax, the UK’s biggest mortgage lender, has cut some of its deals as the market anticipates a rate cut next month.

The lender, owned by Lloyds (LLOY.L), offers a two-year fixed rate of 4.63% with a £999 fee for first-time buyers. This is the lowest two-year fix rate mortgage to individuals purchasing a property with a 40%.

The equivalent five-year rate starts at 4.26% (also 60% LTV), also unchanged.

It also offers a 10-year deal with a mortgage rate of 4.93%.

First Direct reduced the mortgage rates it is offering by up to 0.17 percentage points on Tuesday, following a slew of rate cuts by major lenders last week.

The bank has cut rates across its range of two-, three- and five-year fixed repayment mortgages, for first-time buyers and home movers.

The reductions include a cut on a two-year fixed-rate deal for people with a 15% deposit, which is now priced at 4.99%, down from 5.16%.

Liam O’Hara, head of mortgages at First Direct said: “We’re pleased to be reducing our rates across our range of two, three and five-year fixed mortgages, across LTVs from 60% to 95%.

“We see the highest demand for those products and today’s changes will help people making their first steps on the ladder, or those moving into their next home.”

As under 4% mortgage rates are off the market, it makes it harder for prospective homeowners to say they’ve secured a good deal.

The 4.20% deal Santander offers appears to be one of the cheapest rates available but it requires a 40% deposit, so you will need a hefty amount of cash upfront to secure the deal. HSBC is close, with a 4.22% deal for a five-year fix.

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Given the average UK house price sits at £261,962, a 40% deposit equates to about £105,000.

Borrowers would need to spread their home loans over more than 70 years to afford the same mortgages on offer just two years ago, banks have said.

There is also a new mortgage product promising to help first-time buyers get on the property ladder with just a £5,000 deposit.

Yorkshire Building Society is offering a deal that enables first-time buyers across England, Scotland and Wales with a £5,000 deposit to purchase a property valued at up to £500,000.

It means first-time buyers could get on the ladder with as little as 1% deposit.

Mortgage holders and debt borrowers have been forced to pay record high repayments in recent years due to the UK's hiked base rate being passed onto customers by banks and building societies. Until now, the consensus was that interest rates have peaked and that 2024 will see the Bank start to cut rates as inflation eases.

However, even with inflation falling to target, traders are now pricing in just one or two rate cuts, compared to expectations of five cuts at the start of 2024.

If the BoE makes any cuts this year, mortgage rates will come down, but not as much as expected for 2024. Markets are pricing one cut in August and maybe another one later in the year.

Nicholas Mendes, head of marketing and mortgage technical manager at John Charcol, said: “It’s important to note that until an official bank rate cut happens, lenders will exhibit mixed attitudes. Those with smaller pipelines may be more proactive in implementing reductions.”

About 1.6 million existing borrowers have relatively cheap fixed-rate deals expiring this year.

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