Finanze Daily Digest - 29/11/2022

The Brief: An investigation by the Telegraph accuses some of the country’s largest lenders of having “far too high” fixed rate deals. The publication claims that mortgage costs offered by Natwest, Barclays, Lloyds Banking Group and HSBC were 50% more expensive than the previous three months despite wholesale borrowing costs having already dropped after the mini-Budget. Representatives from high-street banks defended their rates when the Telegraph sought comments.

Why It Matters: The five-year UK mortgage rate has fallen below 6% for the first time since early October. Rates hit a 14-year high last month.

Finanze Foresights: While the current rates offered by high-street banks are relatively high, it must be noted that lenders use a variety of factors to determine their pricing strategy. Huw Pill, the Bank of England’s chief economist, predicted earlier this month that there will be more interest hikes in the coming year, which will influence lenders’ affordability calculations as they pass on the increase in the Bank Rate to mortgage holders through higher monthly payments. Banks are also known to react much faster when hiking their home loan prices, but much slower when reducing them. For instance, the market turmoil that former PM Liz Truss and chancellor Kwasi Kwarteng unleashed caused some banks to withdraw their mortgage products and then re-offering them back 2 percentage points higher. Santander, for instance, pulled some products for new mortgage applicants but hiked rates for their current borrowers. Since the market has stabilised in the past few weeks, we have yet to see mortgage costs reducing at the same pace. Not all banks can afford a swift reduction in rates as well since it may mean being swamped by a huge number of applications so they need to be extra cautious to meet borrower demand, especially now that property prices are slowly on a downtrend.

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