Santander has cut mortgage rates for those buying homes with smaller deposits, despite the expectation that the Bank of England will hold interest rates at 4.25 per cent tomorrow.
The changes are aimed at first-time buyers and home movers with a 5 per cent or 10 per cent deposit.
The mortgage rate cuts will be up to 0.22 percentage points.
The new products are available to all customers, whether they are applying via a broker or directly.
Santander’s lowest five-year fix for first-time buyers will now charge 4.85 per cent with no fee and £250 cashback.
On a £200,000 mortgage being repaid over 25 years that would cost £1,152 a month.
Cutting: Santander has today reduced its mortgage rates by up to 0.22 percentage points
Home movers can do slightly better, with Santander offering a 4.78 per cent rate – again with no fee and £250 cashback.
There are slightly lower rates on the market, but these tend to come with higher fees. For example, Monmouthshire Building Society is offering a 4.75 per cent rate with £1,379 of fees.
Nationwide is also offering a 4.79 per cent five year fix at 4.79 per cent with £999 of fees.
Buyers can compare rates and fees using This is Money’s mortgage calculator.
First time buyers with a 10 per cent deposit can secure a five-year fix at 4.47 per cent with Santander with a £999 fee and £250 cashback.
Home movers with a 10 per cent deposit get a market-leading 4.4 per cent rate with Santander, albeit with the same fees.
The next best deal after that is Virgin Money charging 4.44 per cent for its five-year fix, with a £995 fee.
Alongside the 90 per cent and 95 per cent mortgage products, Santander is also cutting deals for home movers buying with 15 per cent deposits.
It is also cutting the rate on its lowest five-year fixed rate remortgage deal for those refinancing with at least 40 per cent equity in their home.
Homeowners can now remortgage to a rate of 3.96 per cent with Santander, which includes fees of £1,058.
That compares to NatWest, which offers 3.95 per cent and a £1,554 fee or HSBC, which offers a 3.99 per cent deal with a £1,008 fee.
Peter Stimson, director of mortgages at the lender MPowered suggests that mortgage rates are unlikely to fall any further for the time being.
‘When it comes to interest rates, inflation has morphed from a blip into a block,’ said Stimson.
Peter Stimson, director of mortgages at the lender MPowered
‘That’s why the prospects of the Bank of England cutting its base rate again tomorrow – already very slim – have evaporated.
‘The swaps market – which mortgage lenders use to set the interest rates they offer on new loans – is already implying that there will be just one further cut to the base rate this year.
He added: ‘For anyone planning to buy their first home or remortgage this summer, who’d been assuming that the only way is down for mortgage interest rates, this week’s inflation data will have been an uncomfortable reality check.
‘Mortgage rates may well have fallen as far as they can for now, and in the coming weeks rates may even creep up back as lenders recalibrate in response to rising swap rates.’
Best mortgage rates and how to find them
How do I stop my pension being used to promote economic growth – I think Rachel Reeves is ignoring the risks: STEVE WEBB replies
I would appreciate you doing a piece on the recent Mansion House accord.
It worries me for my default pension fund investments with my own pension firm (I see they are signing up).
I note Rachel Reeves says it will ‘boost pension pots’, which ignores the downside risk. And I do not want to take part.
Are there pension suitable funds out there that I could select that will not take part in this?
To be clear I want to stay with my current provider as my pension is still receiving employer contributions.
Steve Webb replies: The Mansion House Accord is a voluntary agreement entered into by 17 large pension schemes and pension providers last month.
These schemes have signed up to a target that 10 per cent of the money in what are called their ‘main default arrangement’ (of which more later) will be invested in ‘private markets’, with at least half of this being in the UK.
Steve Webb: Scroll down to find out how to ask him YOUR pension question
You can see which schemes have signed up and read the full text of the Mansion House Accord here.
There are a few technical terms used in that description which it is worth explaining, as they are relevant to your question.
The first is the idea of a ‘default arrangement’. This is simply the place where your money is invested unless you make an active choice to do something different.
In most schemes, the vast majority of member savings are held in these ‘default’ arrangements, but there will generally be other options in which you can invest which are not covered by this agreement.
The second is the idea of ‘private markets’.
Historically, a lot of pension money has been invested in things like the major stock markets in the US, the UK and around the world.
Large amounts have also been invested in things like government debt (like UK government bonds, called gilts). These types of investment are in ‘public markets’.
But governments (and pension schemes) are increasingly interested in other ways of investing which they believe have the potential to generate more economic growth (for society as a whole) and potentially better returns to members.
This could include investing in start-up or ‘early-stage’ businesses which are not (yet) listed on stock markets.
It could also include investing directly in things like big infrastructure projects such as the upgrade to the national grid needed in the coming decades as the way we power our economy changes.
In principle, there is no reason why an allocation to these ‘private markets’ should be damaging to your pension.
Although the costs tend to be higher, the expected return over the long-term is typically also higher.
But it is true to say that there is greater uncertainty about those returns, which is why private markets will typically be only a relatively small part of the overall investment mix – 10 per cent in this case.
If you read the text of the Accord, you will see that there are several safeguards built in to protect members.
Economic growth: The Government wants pension firms to invest retirement funds in private company and infrastructure assets
Fiduciary duty: The trustees (and others) who oversee your pension have an over-riding duty to put your interests first.
The goal of 10 per cent investment in private markets by 2030 is subject to the trustees being confident that in doing this they are still acting in your best interests.
Consumer Duty: In July 2023, the Financial Conduct Authority introduced the powerful concept of ‘Consumer Duty’ which applies to the insurance companies who provide pensions.
In simple terms, they now have an over-riding duty to do right by their customers. Although it is pretty shocking that such a rule was needed, it has already had a powerful impact in the financial services sector.
Signatories to the Mansion House Accord have said that they will only pursue the 10 per cent target if it is consistent with their responsibilities under ‘Consumer Duty’. You can read more about Consumer Duty here.
If the Mansion House Accord was simply a voluntary agreement, with schemes only heading for 10 per cent if they were confident it was in the member’s interest and consistent with the duty to do right by their consumers, then you could probably be fairly relaxed about all of this.
But there is a sting in the tail.
The Government is not convinced that the industry will deliver on this goal (partly based on the slow progress on previous similar initiatives) and so are planning to give themselves a power via the recently-published Pension Schemes Bill to force pension schemes to invest a particular proportion of their default funds in private markets.
Although the Bill contains a safeguard where schemes can argue that they should be exempt from this if they are convinced it would not be in the members’ interests, this is still a pretty big stick, and will put pressure on schemes to hit the target.
My personal view is that the Government simply should not be doing this.
If the Mansion House Accord is clear that trustees’ first duty is to their members, and that schemes should do right by consumers, then I cannot see how the Government can justify a threat to over-ride all of this.
In practice however, a 10 per cent allocation to private markets is probably a reasonable enough thing for large schemes to do, and I suspect that most of the signatories were happy to sign up on the basis that they were planning to go down this route in any case.
If you remain unhappy, you have the option of simply moving your workplace pension money into one (or more) of the alternative investment choices available.
You should be aware that these funds may have higher charges (as they are not covered by the 0.75 per cent charge cap on workplace pensions) and you will need to understand what level of investment risk you are taking on.
But you may be reassured to know that you can stay with your current provider but without being bound to remain in the arrangement covered by the Mansion House Accord.
