RBA interest rates: Reserve Bank holds official cash rate at 4.35%

Two major lenders have cut their mortgage rates as experts predict they will continue to come down over the next few weeks.

Nationwide and Barclays both made cuts to their rates this week, alongside smaller lenders, as competition in the market has begun to build back up.

It follows the Bank of England’s (BoE) decision to hold interest rates at 3.75 per cent for the fourth time in a row. The BoE’s Monetary Policy Committee voted 7-2 in favour of holding rates today.

That marks a significant turnaround from when the war in Iran first broke out, at which point economists predicted the base rate would increase back to 4 per cent by the end of the year, with mortgage rates expected to rise as a result.

Although there was an initial spike, rates have since come down as lower inflation and an interest rate hold have increased lender and consumer confidence. Industry experts add that homebuyers and sellers grew tired of holding off on making a decision.

Nationwide has cut its rates across the board by 0.8 percentage points, making it considerably cheaper than rivals – and experts say the move could prompt others to make more drastic cuts.

The building society now offers a two-year fixed rate for purchases at 4.29 per cent with a £1,499 fee for loans of £300,000 or more, or 4.34 per cent with a £999 fee for smaller mortgages.

Aaron Strutt, product director at Trinity Financial, said: “Nationwide has undercut itself with the latest rate reduction as it already topped many of the ‘best buy’ tables, suggesting lenders are taking drastic measures to boost activity in the property market.

“I think this shows how keen the lender is to attract more customers and issue more mortgages at a time where many banks and building societies would prefer the property market to be a bit busier,” he said.

Barclays also lowered its prices, offering a two-year fix for 4.3 per cent and a best buy five-year fix with a rate of 4.43 per cent – a drop of 33 percentage points.

Halifax is still offering its two-year tracker mortgage with a rate of 3.96 per cent, with a £1,499 fee and a 40 per cent deposit required.

David Hollingworth, associate director at L&C Mortgages, said: “Rates have been gradually easing back for a number of weeks. That has been in part to a gentle improvement in swap rates, but also as a result of lenders looking to hone their competitive edge.”

Smaller lenders, Fleet Mortgages and Virgin Money, also cut their rates this week.

Currently, the average two-year fixed rate is 5.59 per cent, according to Moneyfacts, whilst the five-year is 5.57 per cent.

What could happen to rates long term?

Experts warn that forecasts remain highly uncertain and hinge on how the war continues to play out. If the war in Iran ends and the geopolitical climate generally stabilises – with a peace deal likely to help – rates should continue to come down slowly over the long term.

But if the Middle East conflict continues to escalate or other factors like a change in prime minister occur, this could spook the market or cause inflation – and subsequently interest rates – to rise.

Steven Greenall, mortgage adviser at Protect & Lend, said: “In 6 to 12 months, rates should be within 25 basis points of where we are today, unless there is a black swan event (an unexpected event).”

Strutt added: “If the war in the Middle East ends and the BoE does not put up the base rate, then hopefully fixes will be roughly where they are now or a bit cheaper [over the next 6 to 12 months].

“If there is a change to our prime minister, then the market could also worry because of the uncertainty that this could bring again,” he added.

“If rates can get closer to 4 per cent again, then borrowers will think they are getting good value for money again.

“Many mortgage borrowers expect the medium-term outlook will lead to lower mortgage rates because the BoE does seem to want the base rate to come down. They are still locking into three and five-year fixes because they don’t want to wait and see what happens.”

Some experts disagree and say the uncertainty is still putting pressure on households.

Lewis Shaw, broker at Shaw Financial Services, said: “I cannot see mortgage rates falling far enough to take the pressure off anyone. Lenders will scrap over what little business there is, but a price war among the desperate is not the same as rates actually coming down.”

What to do if you’re due to remortgage

While brokers hope rates will continue to creep down over the next few months, they advise against waiting to see if your fixed mortgage deal is due to end, as any changes in the war in Iran could cause rates to spike again, while most lenders’ Standard Variable Rates (SVR) are much higher.

The average SVR was 7.13 per cent as of the end of May.

Shaun Sturgess, director at Sturgess Mortgage Solutions, said: “If your fixed rate is ending in the next few months, the worst thing you can do is nothing.

“Most lenders will automatically move you onto thei…