Major banks slash mortgage rates as Labour victory looms…

Three major lenders have cut mortgage rates ahead of an expected Labour victory this week.

Halifax and Natwest have slashed rates by up to 0.23pc while Clydesdale Bank said its rates will fall by 0.38pc.

The reductions come amid hopes that the Bank of England will cut interest rates next month after holding the Bank Rate at 5.25% since August last year.

Economists said house prices have plateaued in recent months in part because of the stagnant Bank Rate.

In June house prices rose just 1.5pc compared to a year ago, according to Nationwide’s latest index. Month-to-month they rose just 0.2pc, down from 0.4pc in May.

Robert Gardner, Nationwide’s chief economist, said: “While earnings growth has been much stronger than house price growth in recent years, this hasn’t been enough to offset the impact of higher mortgage rates, which are still well above the record lows prevailing in 2021 in the wake of the pandemic.”

Tom Bill, of estate agency Knight Frank, added: “Mortgage rates drifted higher over the first six months of the year as stubborn services inflation meant the prospect of the first rate cut since March 2020 became more remote.

“Together with uncertainty surrounding the general election, that has kept a lid on the seasonal rise in trading activity this spring. We expect transaction volumes to rise in the second half of this year as a rate cut becomes imminent and more political stability returns to Westminster.”

In June, the Bank of England held the Bank Rate for the seventh time at 5.25pc, despite inflation falling to its target of 2pc in May. Since the Bank was made independent in 1998, it has never changed rates immediately before a general election.

However economists forecast a rate cut in August, which it is hoped will stimulate buyer activity.

The average two-year fixed residential mortgage rate is now 5.95pc, according to analyst Moneyfacts, and the average five-year rate is 5.53pc.

Bank of England data last week revealed mortgage approvals for house purchases fell from 60,800 in April to 60,000 in May, while approvals for remortgaging decreased slightly from 29,900 to 29,600 over the same period.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Mortgage approvals for new purchases dipped slightly in the previous month, perhaps reflecting stubbornly high mortgage rates, which may have raised borrower concerns with regards to affordability and confidence.

“With inflation hitting its 2pc target, an interest rate cut is increasingly likely, which will boost the market and give lenders more confidence to price their mortgage rates lower.”

David Hollingworth, of brokerage London & Country Mortgages, said mortgage borrowers had been offered “no relief” by the Bank’s latest decision to hold rates.

At the start of the year market analysts pointed to a rate cut as early as June, but sluggish inflation and the surprise election has left the housing market in limbo, with some predictions now putting the first cut as late as November.

In the short term, all eyes are on swap rates – the main pricing mechanism for fixed-rate mortgages.  Although they have increased slightly, Nicholas Mendes of brokerage John Charcol said there is still overall margin for lenders to make reductions in pricing.

However, he said, “It will be worth keeping an eye on whether any further increases result in a slight increase in mortgage rates over the next fortnight.”