Mortgage rate rises: HSBC drops mortgage rate to 3.95%

HSBC has introduced a five-year fixed-rate mortgage at 3.95%, one of the lowest rates currently available in the UK market.

This follows the Bank of England's decision to cut the base rate to 5%, down from 5.25%, with lower mortgage rates expected across the market.

We reveal how this decision could have a knock on effect for renovation mortgages and self-build mortgages and how a more competitive mortgage market will impact house prices

HSBC's 3.95% mortgage lowest rates seen since April

HSBC has launched a five-year fixed-rate mortgage at 3.95%, requiring a 40% deposit and a £999 fee. 

This rate is currently among the lowest in the market and the first time rates have dropped below 4% since April.

First-time buyers who choose HSBC's Energy Efficient Homes (EEH) range can also receive up to £1,600 cashback. 

This move follows recent reductions in mortgage rates by other major lenders like NatWest, which offers a 3.97% deal for those with a 40% deposit. HSBC's subsidiary, First Direct, has also cut rates across its mortgage range, with some rates as low as 3.89%.

How will you be affected by mortgage rate declines?

For those with variable rate tracker mortgages linked to the Bank of England base rate, a base rate decrease will likely result in an immediate lowering in mortgage payments. 

People with standard variable rate mortgages may also see their rates decrease with any interest rate decline, but the exact change depends on the lender, so it's not guaranteed. To be sure, check your mortgage terms in the original offer document.

Those with fixed-rate mortgages won't see immediate changes in their payments, but they will be affected when their fixed term ends.

The impact on your mortgage payments depends on your mortgage type and when your current deal expires.

How will renovators be affected?

Interest rate rises could affect those renovating a house in a couple of different ways. Those who’ve taken out a loan to fund their project could find that a decline in interest rates means the project will cost less to complete. 

Renovation mortgages often have higher interest rates than regular ones because lenders take on more risk when lending money for home improvements. However, they can still be a helpful choice if you want to enhance your home but can't afford to pay for it all at once.

As for renovation mortgages, it is likely that those on tracker or variable mortgages will be affected if interest rates decline. But as with conventional mortgages, those on fixed-rate deals will be unaffected.

What about self builders? 

Self build mortgage interest rates generally exceed standard rates for purchasing or refinancing a home, typically ranging from 5% to 7% annually. 

The associated arrangement fees are subject to variation, contingent upon the chosen broker or lender.

Additionally, the duration of your commitment to the lender typically ranges from one to three years, depending on the specific lender and product selected.

Inflation is also impacting building materials with rising prices and construction materials shortages impacting those looking to build their own home.

Could interest rates fall again?

The Bank of England will hold its next interest rate meeting on 19 September 2024 where they will decide whether the base rate goes up, down or stay the same.

Matt Smith, Rightmove’s mortgage expert, said: “The highly anticipated rate cut has finally arrived, and while those looking to take out a mortgage soon shouldn’t expect to see drastically lower mortgage rates, we would expect the downward trend we’ve started to see continue. 

"This sets us up for hopefully further cuts to come, and when we have seen further reductions to the Base Rate, people should really start to see the impact. However, it’s important to keep in mind that mortgage rates are widely expected to eventually settle at higher levels than previously, with the market view that the base rate may eventually fall to about 3.25%."

As well as the cuts from HSBC as August progresses, further rate cuts are expected from other major lenders such as Santander, Halifax and Barclays, contributing to a highly competitive mortgage landscape.