HSBC has followed Barclays and NatWest in lowering mortgage rates amid speculation of a possible summer base rate cut by the Bank of England.

Barclays reduced its fixed-rate home loan costs for new deals on Tuesday, and HSBC's rate cuts will take effect on Wednesday. Brokers anticipate more mortgage companies to join in with similar reductions.

Despite these rate cuts, borrowers still face relatively high costs, with many expected to pay significantly more when their current cheaper deals expire. Average mortgage rates have been rising due to a lack of fresh competition among lenders during the election campaign. According to Moneyfacts, the average rate for a two-year fixed deal is 5.96%, while a five-year fixed deal averages 5.53%.

“These moves [by HSBC and others] suggest that the recent edging up in rates is now unwinding and most cuts are being made in small steps,” said David Hollingworth from broker L&C.

Fixed mortgage rates remain unchanged until the deal expires, usually after two or five years, after which borrowers must choose a new rate or risk being placed on a variable rate, which can be very expensive. Approximately 1.6 million existing borrowers have relatively cheap fixed-rate deals expiring this year.

Although spring typically sees increased activity in the housing market, this may have been subdued as potential buyers wait for more political certainty. Borrowers are also closely watching the Bank of England's Monetary Policy Committee (MPC), which will decide on interest rates at its next meeting on 1 August. The recent meeting suggested a potential majority in favor of a rate cut.

Optimism about a possible rate cut may have prompted the latest moves by major lenders, who are also competing for customers. Andrew Montlake from mortgage broker Coreco noted, “Lenders will be keen to kickstart a market lethargic from the election, hot weather, and football.” He added that a rate cut would help alleviate financial pressures on the economy and borrowers.

However, Montlake cautioned that the positive news about falling inflation might be temporary, potentially leading to more caution from the Bank of England. Michelle Lawson from Lawson Financial stated that borrowers were "beleaguered" but anticipated that more lenders would reduce rates in the coming days.

Separate figures released by UK Finance, which represents lenders, indicated a continued decline in the number of people paying only the interest on their home loans, despite the challenging conditions for borrowers. Photo by Danesman1, Wikimedia commons.