Lloyds Bank warns mortgage rates to stay above 4 per cent despite Bank of England base rate cuts
Economists are hopeful for a base rate cut in August
GETTY
The head of the UK's biggest mortgage lender has warned homeowners mortgage rates will remain above four per cent.
Many homeowners are holding out for a base rate cut which could in turn see mortgage levels return to their pre-pandemic rate.
But Charlie Nunn, chief executive of Lloyds Banking Group has offered a bleak outlook for anyone awaiting relief.
Mortgage interest rates fell to historic lows in 2020 and 2021 during the Covid pandemic, with many lenders offering homeowners rates under three per cent.
This all changed during 2022 when inflation skyrocketed and mortgage interest rates surged to their highest levels since 2002.
The average mortgage rate now sits around five per cent, with Nun explaining this is “the new normal,” regardless of any base rate cuts from the Bank of England this summer.
The average mortgage rate now sits around five percent,
GETTYThe Bank voted to keep interest rates at a 16-year high of 5.25 per cent in a close-run decision at the beginning of the month, despite figures showing inflation had hit their two per cent target in May.
But the minutes from the Bank’s rate-setting committee signalled a significant change in tone, with economists predicting the majority could vote for a cut when they meet again on August 1.
The interest rate cuts from the Bank of England expected later this year would be "beneficial" - but Nunn warned homeowners not to expect a return to the ultra-low interest rates seen for most of the last 16 years.
He explained the short-term impact of interest rate cuts will be on the cost of government debt, but the impact on the broader consumer in the UK will take longer to feed through.
He said: "Around mortgages specifically, we've just come off a decade where mortgages have been in the 1.5-2.5 per cent range.
"The expectations the market have is that interest rates probably won't get below 3.5 per cent. And that means mortgages, or the new normal for mortgages, will be in that 3.5-4.5 per cent range, not 1.5-2.5 per cent.
"So there is going to be a higher cost of borrowing in the economy, probably based on what we can see happening at the moment.
"But a reduction in rates will be good for the government's own capacity to invest and will support the economy and it should be good for business."
In anticipation of a rate cut this summer, many lenders have started to cut their mortgage rates.
HSBC and Skipton Building Society are the latest lenders to cut selected fixed-rate mortgage rates.
HSBC has reduced the cost of a range of two-, three- and five-year rates across its residential and buy-to-let rates.
Its two-year fixed rate for residential remortgage at 60 per cent loan to value now starts from 4.88 per cent with a £999 fee (the fee-free option starts from 5.18 per cent) and the equivalent five-year fixed rate is now at 4.44 per cent with a £999 fee (or 4.64 per cent with no fee).
Skipton has also cut selected residential and BTL deals.
For home purchase, its two-year fixed rates start from 5.18 per cent with a £495 fee, or five-year rates start at 4.64 per cent with a £1,295 fee. Both deals are available for borrowers with at least a 40 per cent cash deposit.
Its two-year fixed rate for residential remortgage is 5.19 per cent with a £495 fee (at 60 per cent loan to value). The equivalent five-year fixed rate deal is at 4.65 per cent with a £1,295 fee.