Best UK mortgage deals of the week

Pedro Goncalves

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

The average rate on a two-year fixed deal this week stood at 6.09%, higher than last week’s 5.99%, while rates for a five-year deal came in at 5.49%, also higher than the previous 5.45%, 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.

Traders are increasing their bets on an August interest rate cut after official figures showed a slowdown in wage growth. Money markets indicate there is a 45% chance of the BoE lowering borrowing costs next month.

"While there are definitely rate cuts taking place in the current market, for example, Big Six lender, Santander announced that it will be reducing its range of residential purchase and remortgage rates by up to 0.14%, overall average rates have not yet shown a steady decline. On the contrary, across all lenders, we've seen a slight increase in the average 2 and 5-year fixed-rate deals compared to last week,” Kellie Steed, Uswitch's mortgage expert, told Yahoo Finance UK.

"That said, we've also seen a fall in swap rates. Paired with a continuous flow of lenders edging certain rates gradually downwards in anticipation of a base rate cut in August, this may result in a reduction in average rates in the coming weeks.

“With many high-street lenders beginning to make small cuts to their fixed rates and even some trackers, all eyes will be on the Bank of England on 1 August in the hope that they will make their first cut since 2020.”

TSB has announced cuts to residential and buy-to-let mortgages of up to 0.2 percentage points. Virgin Money and Clydesdale Bank reduced their standard variable rates by 0.25 points last week, with Virgin also launching limited-edition special rates that will be available until Monday 22 July.

Plus, Yorkshire Building Society has reduced its mortgage interest rates by up to 0.25%, for the second time in two weeks.

Read more: How renting might be a better investment than buying

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, 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 BoE’s 2% target for the first time in nearly three years and it stayed there in June.

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, the same as last week’s deal.

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. The rates are much higher, however, 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.

Read more: UK property asking prices dip as buyers hope for interest rate cut

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 4.24% for a five-year deal with a £1,495 fee, assuming a 60% LTV. After five years, however, the rate almost doubles to 8.24%. Last week the same deal was pricier, at 4.26%.

Natwest offers 4.29% 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 4.67% online, with a product fee of £1,495. Cheaper than last week’s 4.78%.

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. Unchanged from last week.

Santander implemented a raft of rate cuts across its fixed-rate deals aimed at home buyers.

A 60% LTV two-year fixed rate with a £999 purchase fee comes in at 4.58%, cheaper than the previous 4.64%. A 75% LTV two-year fixed rate with a £999 purchase fee is priced at 4.49%. This is the lowest two-year fix on the market for those buying with a 25% deposit.

“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 4.09%, still a better deal than last week’s 4.23%.

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When it comes to two-year mortgage deals, the lowest you can get is 4.52%, also a drop from the previous 4.68%.

At Nationwide (NBS.L), five-year purchase fixed rates start from 4.59%, 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 £1,009.

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 4.61% with a £999 fee for first-time buyers.

The equivalent five-year rate starts at 4.18% (also 60% LTV), lower than last week’s 4.26%.

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

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 4.09% deal Barclays 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. Halifax is close, with a 4.18% deal for a five-year fix.

Aaron Strutt of brokers Trinity Financial said: “More lenders are lowering their rates at the moment to undercut their competitors. This is good news for borrowers planning to get on the property ladder soon or remortgaging homeowners keen to minimise the payment shock.”

Read more: Which first-time home buyer scheme is right for me?

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.

This means first-time buyers could get on the ladder with as little as a 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 rate cuts 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 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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