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Major bank cuts mortgage rates as markets wobble as Budget hits businesses
Plus we reveal how you can get the best deal for your home loan
A MAJOR bank has cut mortgage rates as markets wobble following the Budget.
Santander has reduced all of its residential, new build and buy-to-let mortgage rates by up to 0.36%.
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The rate reductions apply to fixed-rates for those buying a home and remortgaging, as well as green, new build and buy-to-lets.
The move means some rates now start from 3.85%.
It comes after the pound fell sharply, UK stock markets slumped and gilt yields spiked following the Autumn Budget announcement yesterday.
Gilts are government bonds. A rise in the yield signals an increase in the cost of borrowing for the government.
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Gilt yields influence swap rates. Swap rates are based on what the markets think interest rates will be in the future.
Fixed-rate mortgage rates offered by banks to customers are usually based on swap rates.
As gilt yields rise or fall, swap rates typically follow, which in turn directly impacts mortgage rates.
Investors have been spooked by the OBR's - the Budget watchdog - warning that inflation will remain stubbornly high above 2%.
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This is expected to reduce the chances of the Bank of England cutting interest rates as fast as they thought.
British interest rates currently sit at 5%. The rate – which is used by banks to determine the interest on mortgages and loans – was reduced from 5.25% in August and maintained in September.
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Analysts say the jump in bond yields is worrying but the market rout isn’t yet close to the scale of the Liz Truss meltdown because bonds were already trading higher to begin with.
Despite the market wobbles, Santander has powered ahead with cuts to mortgage rates.
Graham Sellar, head of mortgage development at Santander, said: "With some uncertainty in the market around mortgage pricing, it’s great to be able to offer borrowers access to lower rates across all of our residential, new build and buy-to-let mortgage products.
Santander's rate reductions
THE full list of new rates can be found online here but here are some examples of residential remortgage rates that have been cut.
- 60% LTV two-year fixed rate residential remortgage with a £999 product fee is now priced at 4.09%, down from 4.19%
- 85% LTV two-year fixed rate residential remortgage with £999 product fee is now priced at 4.89%, down from 5.19%
- 75% LTV three-year fixed rate residential remortgage with no product fee is now priced at 4.54%, down from 4.84%
- 60% LTV five-year fixed rate residential remortgage with £999 product fee is now priced at 3.95%, down from 4.05%
The LTV ratio is the percentage that your bank or building society is lending you to buy your home.
Not every high street lender is moving in the same direction though.
Virgin Money said it would be increasing its mortgage rates by up to 0.15% today.
However, brokers have said it's too early to know whether this is a trend.
Accord Mortgages also announced reductions at the same time ahead of Santander's move.
MPowered and LiveMore have also written to brokers that it is pulling products today amid rising swap rates as markets react to the Budget.
Specialist lender MPowered said: “Due to the rise in swap rates, we’ll be revising our fixed rate products at 5.30pm Friday, November 1."
The Sun has contacted all the major lenders to find out what they're planning to do with rates.
What do the experts say?
Swap rates over the coming days are expected to reveal the direction of travel ahead of the Bank of England base rate decision next week.
They took an initial uptick on Wednesday in the immediate aftermath of the Budget.
Ben Perks, managing director at Orchard Financial Advisers pointed out: "The reductions from Santander will have been priced in ‘pre-Budget’ and it’s encouraging that nothing they heard [in the Budget] deterred them.
"As long as swap rates don’t rocket skyward, more lenders should reduce over the coming weeks."
Nicholas Mendes of John Charcol said: "The OBR report makes for interesting reading, though several variables still need to play out.
"While it highlights important points regarding inflation and its potential impact on future bank rate movements, there's still uncertainty ahead."
He said that the upcoming MPC (Monetary Policy Committee) meeting on November 7 will be "particularly noteworthy".
The Bank of England meets roughly every six weeks to vote on whether to increase, hold or lower the base rate - this then affects loans, savings rates and mortgages.
Different types of mortgages
We break down all you need to know about mortgages and what categories they fall into.
A fixed rate mortgage provides an interest rate that remains the same for an agreed period such as two, five or even 10 years.
Your monthly repayments would remain the same for the whole deal period.
There are a few different types of variable mortgages and, as the name suggests, the rates can change.
A tracker mortgage sets your rate a certain percentage above or below an external benchmark.
This is usually the Bank of England base rate or a bank may have its figure.
If the base rate rises, so will your mortgage but if it drops then your monthly repayments will be reduced.
A standard variable rate (SVR) is a default rate offered by banks. You usually revert to this at the end of a fixed deal term, unless you get a new one.
SVRs are generally higher than other types of mortgage, so if you're on one then you're likely to be paying more than you need to.
Variable rate mortgages often don't have exit fees while a fixed rate could do.
Not only for the voting split among members but also for the insights in the meeting notes.
Mr Mendes continued: "Though recent forecasts have slightly downplayed the likelihood of a rate cut in December, markets are still anticipating reductions beginning in February 2025.
"Historically, markets react swiftly, then settle, often bringing renewed optimism. This is why brokers and lenders will be closely monitoring market conditions to adjust mortgage pricing accordingly over the next few weeks."
What does it mean for your mortgage?
Interest rates are still expected to fall in the medium term, but may be at a slower pace than previously expected said Mr Mendes.
He said: "I expect the downward trend in mortgage rates to resume before year-end, potentially returning to the best rates we've seen recently, with further improvements anticipated next year.
"It’s also important for borrowers to remember that current fixed mortgage rates already incorporate some expected bank rate cuts for the coming year.
"Consequently, I remain optimistic that the lowest fixed rates will stabilise around the low 3% range next year, despite recent adjustments."
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He said his advice for those nearing the end of their fixed rate remains to avoid delaying in hopes that rates will return to levels seen a few weeks ago.
"Secure a deal now and review it continually. While we're optimistic about downward repricing, the pace and trajectory remain uncertain," he said.
How to get the best deal on your mortgage
IF you're looking for a traditional type of mortgage, getting the best rates depends entirely on what's available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you're remortgaging and your loan-to-value ratio (LTV) has changed, you'll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home's value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you're nearing the end of a fixed deal soon it's worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal - but compare the costs first.
To find the best deal use a to see what's available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You'll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee - sometimes more than £1,000 - to the cost of the mortgage, but be aware that means you'll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you'll have to pass the lender's strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month's payslips, passports and bank statements.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected].
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