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UK Lenders Intensify Mortgage Price War amid Slowing Inflation

In response to increasing competition, a slowdown in inflation, and growing expectations of future Bank of England (BoE) interest rate cuts, British lenders have escalated their efforts to lower mortgage prices.

Moneyfacts data reveals that average rates on fixed-rate mortgage products have decreased by over 0.5 percentage points since reaching their peak in July. This reduction is occurring even before the BoE initiates a decrease in the benchmark rate that influences borrowing costs.

Wednesday's inflation data showed a faster-than-expected decline in price rises in the UK, dropping to 4.6% in October from the previous month's 6.7%. This has prompted investors to bet further on BoE rate cuts next year.

On Wednesday, HSBC joined other lenders, including Halifax, Virgin Money, and Nationwide, in cutting rates by an average of 0.15 percentage points across its products.

As of Wednesday, the average two-year fixed-rate mortgage was 6.19%, down from its peak this year of 6.86% on July 26. The average five-year rate stood at 5.79%, down from its peak of 6.37% on August 2.

Some bank mortgage teams are reportedly increasing their activity late in the year to meet year-end company targets, aiming to recover from a wider market slump. However, the overall outlook for the UK housing market remains challenging, with house prices falling in annual terms for the first time since 2012, according to separate data on Wednesday.

While rate reductions provide relief for borrowers seeking new mortgage deals, challenges persist in the housing market, given the country's elevated inflation rate compared to most other developed economies. Additionally, cuts to fixed mortgage rates may not be mirrored by variable rates closely tied to the BoE rate.


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