Major mortgage lenders are reducing rates as part of a year-end price competition to meet sales targets. NatWest, Santander, and Barclays lowered rates last week, despite widespread expectations that the Bank of England will maintain its benchmark Bank Rate during its final meeting of the year on Thursday.
On Monday, TSB joined the trend with reductions of up to 0.25 percentage points on its fixed-rate mortgages. Experts believe these rate cuts stem from lenders striving to achieve their annual sales goals, with further reductions likely to continue into the new year. December has also seen unusual activity in the property market, as buyers rush to finalize purchases ahead of a stamp duty hike in April.
Santander reduced rates by up to 0.23 percentage points across more than 70 mortgage products, while NatWest cut its two- and five-year fixed-rate deals by up to 0.39 percentage points. Barclays followed suit with reductions of up to 0.14 percentage points.
Chris Sykes, director at the Private Finance broker, noted: “Lender targets reset in January, so they push competitive pricing to hit their goals. Some lenders have set ambitious targets for next year.” Aaron Strutt of Trinity Financial added: “Rates have been dropping recently, and it’s very likely we’ll see sub-4% rates in January. Lenders want a strong start to the year and are lowering rates to attract borrowers amid intense competition. Two, three, and five-year fixes are already nearing 4%, which is encouraging news for first-time buyers.”
Swap rates, the key pricing benchmark for fixed-rate mortgages, have been steadily declining over the past month. The five-year swap rate is now close to 3.8%, with the two-year rate at around 4.1%. Growing market confidence, fueled by expectations of future Bank Rate reductions, has also contributed to falling rates.
Andrew Bailey, Governor of the Bank of England, suggested this month that the central bank might implement up to four rate cuts in 2024. The current Bank Rate stands at 4.75%.
Jack Meaning, chief UK economist at Barclays, predicts the Bank’s Monetary Policy Committee (MPC) will accelerate rate cuts after spring, with reductions of 0.25 percentage points in May, June, August, and September. By the end of 2024, the Bank Rate could drop to 3.5%.
However, the MPC has emphasized a “gradual” approach to rate reductions due to global economic uncertainty and persistently high UK inflation, which rose to 2.3% in October—above the central bank’s 2% target. This could delay further rate decreases. While most lenders are cutting rates, HSBC has chosen to raise its offers. The bank’s rate reductions will primarily benefit new customers with larger deposits or higher equity in their properties. Rohit Kohli, director at the Mortgage Stop, suggested this strategy may help HSBC manage demand and maintain service quality.
The rate cuts will be welcomed by first-time buyers aiming to complete purchases before stamp duty thresholds revert in April. The nil-rate threshold is set to decrease from £425,000 to £300,000 next year.