HSBC releases sub 4% mortgage deal: What does this mean for you?

The news comes after similar announcements from Halifax and Leeds Building Society. Before Christmas we did see rates coming down by 0.3% or 0.4% - in fact, they've been dropping since the start of August. But on Tuesday 2nd January Halifax, the UK's biggest mortgage lender, slashed rates by a whole 1%!

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Watch our CMO Polly on Sky News explaining what HSBC's new sub 4% mortgage deal could mean for first-time buyers and remortgagers:

Why are mortgage lenders reducing rates?

There are two key reasons why lenders like HSBC and Halifax are reducing their mortgage rates. Firstly, because lenders are factoring in that we’ve reached peak interest rates for the time being. Swap rates - which determine mortgage pricing - have been falling over the Christmas break. And it’s widely expected that there will be numerous cuts to the base rate later this year, the first is anticipated in May - but if inflation continues to fall, it could be as soon as March!

Secondly, after weaker mortgage demand in 2023, lenders are trying to meet their lending targets.  Last year presented would-be buyers with an incredibly difficult challenge, and in response activity was stunted - gross mortgage lending fell by 28pc across the UK. First-time buyers, the lifeblood of the market, were hit hardest - activity was at its lowest for 10 years. 

What does this mean for you?

Well, for customers who are in the process of locking in a mortgage deal, the difference could be hundreds of pounds. The Halifax cuts represent a saving of £150 for a household with a £300k mortgage over 25-years - a significant saving for families who are desperately cost-cutting! 

Those with remortgages due this year will be breathing a huge sigh of relief. After the doom and gloom of last year’s headlines, most people will be expecting a punishing remortgage. It’s important for people to be realistic though - although rates are coming down, we’re not expecting a return to the sub 2% rates we saw during the pandemic. People should prepare for their monthly costs to increase, and budget accordingly. 

First-time buyers were hugely impacted last year, with numbers dropping by a fifth as interest rates of above 6% throttled affordability. Regardless, we’ve seen that first-time buyers are incredibly resilient and motivated - they aren’t giving up! The rental market isn’t working for the next generation of buyers, and homeownership remains a key life milestone for most people. It’s worth bearing in mind that the headline rates we see are for those with much larger deposits. For first-time buyers with a 10% deposit, rates are still above 5%. 

Above and beyond this, we're pleased to see confidence returning to the market. Time will tell whether rates continue to reduce significantly throughout the year. But it’s refreshing after over a year of doom and gloom - sparked after the Autumn budget in 2022 - to see some good news stories that leave people with more money in their pockets each month. 

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What impact will this have on house prices?

It’s fast becoming clear that it’s a fool’s game to predict house prices! The 1.1% drop in house prices over the last year was small to say the least when compared to what was predicted (20%-40%!!). After the huge acceleration in house price growth during the pandemic, last year could be seen as more of a natural correction. It seems likely that this year we’ll get to more of a period of stability, predictions vary between a flatline and small drops of 2-4%. See our predictions here.

Read more: Are house prices still rising?