Have we finally turned the corner on mortgage misery? Banks launch price war by slashing the cost of loans in much-needed relief to embattled homeowners

Banks have launched a mortgage price war that will bring much-needed relief to embattled homeowners.

Halifax, the nation’s largest lender, will slash the cost of its loans by up to 0.71 percentage points. The major move follows cuts announced this week by HSBC, TSB and Nationwide.

Brokers last night predicted mortgage rates would now be lowered elsewhere.

‘Halifax is making the single largest rate reduction I have seen from a high street lender,’ said Jamie Lennox of Dimora Mortgages.

‘I expect others to reduce their rates this week, which could start a price war.’

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Five-year fixes at Halifax, which is part of Lloyds Banking Group, will from tomorrow fall to 5.28 per cent for borrowers with 40 per cent equity

Nationwide, the second-largest lender, reduced some fixes by up to 0.55 percentage points yesterday while HSBC slashed rates by up to 0.35 percentage points in its second round of cuts in a fortnight

The cuts will further bolster hopes that mortgage costs have peaked, although borrowers still face near-record payments.

Five-year fixes at Halifax, which is part of Lloyds Banking Group, will from tomorrow fall to 5.28 per cent for borrowers with 40 per cent equity. They had been paying 5.99 per cent.

The lender has also cut its two-year deals by up to 0.27 percentage points. Buyers with a 20 per cent deposit will pay 6.18 per cent.

Nationwide, the second-largest lender, reduced some fixes by up to 0.55 percentage points yesterday while HSBC slashed rates by up to 0.35 percentage points in its second round of cuts in a fortnight. TSB also reduced its prices by up to 0.4 percentage points.

The average two-year deal now sits at 6.83 per cent, with five-year rates at 6.34 per cent, according to MoneyfactsCompare.

The falls follow the Bank of England’s decision to raise its base rate to 5.25 per cent last week. Lenders had previously expected it to hit 6 per cent by the end of the year.

But June’s lower than expected inflation figure started a run on rates as the market lowered its estimate for the BoE peak.

The cost for banks to borrow money to lend to homeowners, known as the ‘swap rate’, has finally stopped rising amid signs that inflation is starting to ease.

Nationwide confirmed this had allowed the lender to ‘reduce rates for new customers’.

Riz Malik of R3 Mortgages said: ‘I expect other major high-street lenders to cut rates by the end of the week. This repricing will be beneficial to thousands of households looking to renegotiate their mortgage between now and the end of the year.’

The falls follow the Bank of England’s decision to raise its base rate to 5.25 per cent last week . Lenders had previously expected it to hit 6 per cent by the end of the year

Property prices have tumbled more rapidly in some areas, including the South East, which saw values decline by 3.9 per cent, or an average £15,500 year on year (Stock Image) 

All eyes are on the next set of inflation figures – to be released next Wednesday –which will confirm how much the cost of living rose in the 12 months to the end of July.

The falling cost of mortgages will come as a relief to homeowners but many still face a major shock when their fixed-rate deals come to an end.

Around 800,000 borrowers with a fix will need to remortgage this year, according to UK Finance, the industry trade body. House prices have been hit by rising interest rates and the cost of living crisis.

Halifax figures show that the average home has had almost £1,000 wiped off its value in the past month, falling 0.3 per cent to £285,044.

Property prices have tumbled more rapidly in some areas, including the South East, which saw values decline by 3.9 per cent, or an average £15,500 year on year.

But Tom Bill, head of UK residential research at Knight Frank, said: ‘Some lenders are cutting mortgage costs as the Bank of England rate nears its peak, which means that while sentiment will remain subdued, it should improve in the second half of this year.’

The Bank began raising its interest rates in December 2021, when they were at just 0.1 per cent, in a bid to stamp out soaring inflation which peaked at 11.1 per cent last October. This was fuelled by a surge in energy prices following Russia’s invasion of Ukraine.

The headline inflation rate was 7.9 per cent in June, having dropped from 8.7 per cent the previous month. It is expected to fall to below 7 per cent in next week’s count. Wages are forecast to grow ahead of inflation next year in a boost to many households.

Economists have already started to see this trend, with data out next week expected to show that salaries are outpacing inflation for the first time in 14 months.