Falling swap rates intensify activity
With HSBC announcing its second rate cut in just a fortnight - following a reduction only last week – competition between lenders appears to be growing. Its latest round of cuts spans almost its entire range, from first-time buyer and remortgage deals to international products, and – in the view of industry commentator Nicholas Mendes (pictured left) reflects a concerted effort to sharpen pricing across the board.
“This flurry of activity follows a wider trend we highlighted recently, with major lenders including Halifax, Barclays, Santander, and Nationwide also making reductions,” said Mendes, mortgage technical manager for London broker John Charcol. “The driving force behind this is falling swap rates, which have dropped by over 20 basis points across two-, three- and five-year terms in the past month. That’s a significant shift, giving lenders the breathing space to price more competitively.”
Recent comments from the Governor of the Bank of England, Andrew Bailey, suggesting the path for interest rates is now “gradually downwards”, have added to market confidence, Mendes observes. “With markets fully pricing in a potential base rate cut as early as August, it’s no surprise that lenders are acting fast to secure best buy positions,” he said. “If another major lender that’s recently repriced moves again in the coming days, it could easily trigger a fresh wave of cuts – and at that point, we could well see the gloves come off.”
Mendes suggests there’s still room for rates to fall further. “The key question now is how quickly others follow HSBC’s lead, and how much margin they’re prepared to sacrifice to stay competitive,” he commented. “With lenders continuing to adjust pricing and competition intensifying, the remortgage market is becoming increasingly attractive. That said, timing is crucial. Lenders are moving quickly in response to market shifts.”
Broker and company director of JML (Financial) Associates, Michelle Ford (pictured second from left), is encouraged to see HSBC cutting rates again, and believes it signals growing competition in the market. “Whether this marks the start of a full-blown price war remains to be seen, but it’s a positive step for borrowers and suggests lenders are keen to capture business in what remains a cautious, rate-sensitive environment,” she said. “For clients, this highlights why advice and timing are so important. Rates can move quickly, both up and down and working with an adviser who’s tracking those changes daily can make a real difference. It’s also a reminder that even in a volatile market, opportunities to secure better deals do still exist.”
Meanwhile, David Hollingworth (pictured second from right) acknowledges, swaps have been coming down steadily over the past few weeks. “Lenders appear keen to take advantage of any chance to make improvements, no matter how small,” he said. “Little and often seems to be the approach. HSBC isn’t the only lender to have made multiple cuts – Santander announced cuts last week and have done so again, while NatWest reduced rates at the beginning of the month and have announced more changes.”
He continued: “While it’s certainly encouraging to see lenders’ enthusiasm for improving rates, these moves are dependent on the cost of funds, which remain volatile and could reverse quickly. For borrowers, securing funds early allows for the flexibility to switch if rates improve further, while also guarding against sudden rate increases.”
Ben Groves (pictured right), managing director of brokerage Yomo Finance also welcomes HSBC’s rate changes. “Whilst the outlook is optimistic, other external news has taken away the fact that rates are still on the downward trend,” he said. “Competition is increasing and our case management team is constantly reviewing products and updating them, and by the sheer volume of updates we can see that clients are benefiting from the reductions and saving them thousands over the product term which is great.” The market is still relatively flat, he notes. “Lower rates mean more affordability, equalling competition amongst purchases which is also important,” Groves said. “If rate reductions were more frequent or larger reductions we would see even more activity in the market.”
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Too soon to call it a price war?
Matt Coulson (pictured inset, above), founder of brokerage Heron Financial, notes a certain ramping up of activity. “HSBC’s second rate cut in two weeks certainly hints at intensifying competition among lenders, but it’s probably too soon to call it an outright price war,” Coulson said. “While we may see others follow suit with competitive offerings, lenders will likely remain cautious given ongoing economic uncertainty. However, increased competition could still encourage innovation and better value, which would undoubtedly benefit borrowers.”
Over at Mortgage Advice Bureau, its strategic lender relationship director, Rachel Geddes (pictured inset, above) observes how the cuts may impact sentiment in the market. "It's great to witness further rate reductions taking place - a development poised to boost confidence for both brokers and their customers,” she said. “Momentum is building, with numerous lenders changing their rates, and we hope to see more reductions across the board in the near future."
