UK lenders slash mortgages as Bank of England rate cut brings relief to homeowners

LONDON — Britain’s major high street lenders have begun slashing their mortgage rates in a sign that financial pressure on households may be easing after the Bank of England cut interest rates for the first time in over four years.

HSBC, Santander and Nationwide are among the lenders to have trimmed borrowing costs following the BOE’s decision on Thursday to lower its Bank Rate to 5% from its 16-year high of 5.25%.

Homeowners on tracker mortgages, which follow the Bank’s base rate, will be the first to benefit from the savings. Barclays, Santander, Metro Bank, Lloyds, Halifax, Nationwide and HSBC all cut repayments costs by 25 basis points shortly after the BOE’s announcement.

Those on standard variable rates, which typically take effect once a borrower’s tracker or fixed rate deal ends, will also see savings. From September, Santander will trim its SVR from 7.50% to 7.25%, Lloyds from 7.25% to 7.0%, and Halifax from 8.74% to 8.49%.

Given their more volatile nature, tracker and SVR mortgages remain a relatively niche part of the U.K. mortgage market. Of the 8.39 million outstanding residential mortgages as of Dec. 2023, 643,000 were trackers and 624,000 were SVRs, according to trade body UK Finance.

However, analysts suggest it may not be long until reductions feed through to the 6.93 million households on fixed rate mortgages. Indeed, last week Nationwide became the first lender since April to offer a sub 4% deal on its five-year fixed rate in anticipation of the BOE’s monetary policy shift.

“[Borrowers can] expect to see further pricing improvements in fixed rates, as lenders continue to fight hard to gain a share in a very competitive market,” David Hollingworth, associate director at L&C Mortgages, said via email.

Laura Suter, director of personal finance at AJ Bell, agreed that other lenders “will follow suit” as Thursday’s decision “fires the starting gun” for the BOE’s rate cutting cycle.

While initial savings for homeowners are set to be minimal — averaging around £28 per month for those on tracker rates, according to Hargreaves Lansdown — the savings are expected to boost confidence that Britain is emerging from its cost of living crisis, with knock on effects for the U.K. housing market.

“It could persuade more buyers that this is the right kind of market to take a leap of faith and buy,” Sarah Coles, head of personal finance Hargreaves Lansdown, said.

Savills’ director of research, Emily Williams, said an increase in buyers should lead to an uptick in market activity in the autumn, with price growth expected to total +2.5% this year.

Still, with the BOE voting to cut rates by a slim 5-4 majority, the future path for rate cuts remains uncertain, and the central bank has warned it will move ahead with caution. As such, some analysts have warned it will be some time yet before more significant savings are fed through to homeowners.

“The split vote decision among rate setters suggests this was a rather hawkish rate cut, so this policy loosening is unlikely to herald the start of a major interest rate-cutting cycle,” Suren Thiru, economics directors at ICAEW, said via email.