Coventry Building Society thus caused a stir this week by cutting its two-year fixed mortgage rate to 3.89%. This change leaves them standing alone as the biggest British mortgage lender to lend below 4%. Unfortunately, this new product is only available to borrowers with a 65% loan-to-value. Further, it is accompanied by a not insignificant cost of £999. That’s why this move by Coventry, the UK’s eighth largest lender according to UK Finance, is so courageous. This commitment is particularly bold within a broader industry where many other large players are taking a wait-and-see approach.
Currently the average two-year fixed mortgage rate is back up to 5.3%. Just yesterday, the national average was a bit higher, at 5.32%. The average five-year fix recently fell to 5.15%. That’s a drop from the 5.17% rate earlier Tuesday. Taken together, these changes are emblematic of an important trend. Other lenders, like TSB Bank, Metro Bank and Bank of Ireland, have begun reducing their rates.
As local governments go, Coventry has been ahead of the curve. Unlike the Big Six lenders—Halifax, Nationwide, HSBC, Santander, Lloyds, and Natwest—who have all decided to wait and see cautiously. Nationwide has yet to announce any cuts to its rates, with a spokesperson noting, “We keep our fixed mortgage rates under regular review, and we have already made a number of rate cuts over the last couple of months.”
Financial markets and economists now expect that the Bank of England will greatly cut interest rates this year. They expect these cuts to exceed past projections. Analysts have argued that these changes are meant to avoid the risk of economic recession with continuing economic uncertainty. Rachel Springall from Moneyfacts indicated that it “traditionally takes a couple of weeks for lenders to respond to swap market volatility,” which may explain the varied responses among lenders.
Swap rates fell below 4% for the first time on Wednesday. This probably played a role in Coventry’s decision to stop offering its original mortgages. The market is changing fast. We are going to have to see how the rest of the lending community reacts to these changes and whether they choose to make any additional rate cuts.