Mortgage war hots up as lenders slash rates

A mortgage war has erupted, with Nationwide Building Society, Santander, HSBC, Halifax, Yorkshire Building Society and Tesco Bank among a wave of lenders to have revamped their ranges. Some lenders are offering their lowest rates ever in the battle to offer appealing deals.

Interest rates are important but so are the incentive package and any fees that are chargeable. Picture: PA

So what’s behind the new mortgage price war?

David Hollingworth, a mortgage expert at L&C Mortgages, says: “Lenders are scrapping it out to attract business, whether it’s from those buying their first home, moving house or looking to switch to a better deal.

“More lenders fighting for business means that they need to stand out from the crowd and truly differentiate themselves.

“This, coupled with some easing in cost of funds, is forcing lenders to offer rates that demand attention. As a result, lenders are squeezing whatever they can out of their deals and offering more and more eye-catching rates.”

Will the mortgage price war continue?

Hollingworth says there’s nothing to suggest an end in sight to the “very, very healthy” competition that’s being seen on the market.

By offering great rates, smaller lenders are forcing bigger lenders to spruce up their ranges to maintain their market position, he adds.

Will rates get any lower?

Rachel Springall, a finance expert at Moneyfacts.co.uk, believes some rates could be shaved lower still by lenders if they need to meet specific targets to draw in new customers.

How can homeowners make the most of what’s on offer?

Springall says concentrating on the interest rate alone may not be the wisest way to navigate the mortgage maze.

“Interest rates are important but so is the incentive package and any fees that are chargeable,” she says. “Some of the lowest-rate deals carry the highest product fees and have little to no incentives, but other deals with slightly higher rates could be fee-free, with a free valuation, and offer free legal fees, which can be much more cost-effective.

“It’s worth remembering that this is just the cost of the mortgage itself; if moving, there will be other costs to pay, such as removal costs.”

Some borrowers may want to lock into fixed-rate mortgage deals to give themselves certainty while others may want more flexibility.

Low mortgage rates also give borrowers who can afford it the opportunity to make overpayments, and perhaps clear their mortgages earlier, Springall adds.

Bank of mum and dad continues to play a vital role

Despite the cheaper mortgage rates on offer, new research shows the bank of mum and dad continues to play a vital role in giving a helping hand on to the property ladder.

It is predicted the bank of mum and dad will be involved in 26 per cent of all property transactions in the UK market this year.

According to research by Legal and General and the Centre for Economics and Business Research, parents this year will lend more than £6.5 billion, providing deposits for more than 298,000 mortgages and helping to buy homes worth £75bn.