HSBC and Gen H Cut Mortgage Rates as Lenders Compete for Borrowers
Mortgage lenders are continuing to make selective rate cuts, with HSBC reducing rates across its residential and buy-to-let ranges and Gen H targeting borrowers with smaller deposits.
The latest changes offer some welcome movement for borrowers, but they do not necessarily mean mortgage rates across the wider market are falling rapidly.
Instead, they show lenders competing for particular types of business even while the overall mortgage market remains expensive and volatile.
HSBC has confirmed a number of reductions across its residential and buy-to-let mortgage ranges, while Gen H has cut rates by 0.15 percentage points across its 90% and 95% loan-to-value (LTV) mortgage ranges, specifically targeting buyers who need to borrow a larger proportion of a property's value.
Gen H targets buyers with smaller deposits
Gen H's decision is particularly relevant to first-time buyers.
A 90% LTV mortgage normally requires a deposit of around 10% of the purchase price, while a 95% LTV mortgage can allow someone to buy with a deposit of approximately 5%.
For anyone starting the home-buying process, our guide to first-time buyer mortgages explains how deposits, affordability, mortgage applications and lender criteria fit together.
Higher-LTV borrowers generally pay higher mortgage rates than buyers able to provide larger deposits because lenders are taking on more risk.
The move highlights one of the biggest affordability problems facing first-time buyers: having enough income to support a mortgage does not necessarily mean having enough savings to access the cheapest mortgage rates.
Someone with a large deposit can potentially choose from substantially cheaper products than a buyer borrowing 95% of the property's value.
This is also why buyers should look beyond the headline mortgage rate and understand what affects how much they can borrow for a mortgage. Income matters, but so do existing debts, outgoings, deposit size, credit history and lender criteria.
How big is the high-LTV mortgage premium?
Recent market data illustrates the difference.
Rightmove's mortgage tracker put the average five-year fixed rate for someone buying with a 25% deposit at 4.97%, compared with 5.68% for a buyer with a 5% deposit.
On an identical £250,000 mortgage over 25 years, that difference was estimated to add around £1,260 a year to the cost of borrowing at 95% LTV.
That makes relatively small changes to high-LTV rates more significant than they may initially appear.
A reduction of 0.15 percentage points will not suddenly make a 5% deposit mortgage cheap, but increased competition between lenders at 90% and 95% LTV could gradually reduce the premium paid by buyers with smaller deposits.
For prospective first-time buyers, it also reinforces why the size of the deposit can have an impact beyond simply determining how much needs to be borrowed.
Moving from one LTV band to another — for example from 95% to 90% — can sometimes unlock an entirely different selection of mortgage products.
For buyers struggling to build a larger deposit, there are also several routes worth understanding. Our guide to five ways first-time buyers can get onto the housing ladder looks at low-deposit mortgages and other potential options.
Family support can sometimes play a role too. Depending on the circumstances, alternatives can include gifted deposits, family-assisted products or a guarantor mortgage.
HSBC makes another round of mortgage reductions
HSBC's latest changes are broader.
The lender has confirmed reductions across residential and buy-to-let mortgages, alongside new options within parts of its higher-value mortgage range.
Repeated repricing by large lenders can be important because competitors regularly adjust their own products in response.
However, borrowers should be careful about interpreting individual lender reductions as proof that the whole mortgage market has entered a sustained downward trend.
Are UK mortgage rates actually falling?
Not consistently.
Current market figures underline how mixed conditions remain.
Average mortgage rates can move in one direction while individual lenders launch substantially cheaper products for particular types of borrower.
That apparent contradiction is important.
The mortgage market does not move as one single rate.
Pricing varies according to factors including:
- deposit or equity
- loan-to-value
- mortgage size
- whether someone is buying or remortgaging
- product fees
- mortgage term
- credit history
- income and affordability
- property type
- lender eligibility criteria
A lender cutting one part of its range can therefore happen at exactly the same time another lender increases rates elsewhere.
Borrowers also need to decide what type of rate suits them rather than automatically choosing the lowest headline number. Our tracker vs fixed-rate mortgage guide explains the trade-off between payment certainty and exposure to changing rates.
What does this mean for first-time buyers?
For first-time buyers, the Gen H changes are arguably the more interesting development.
Higher-LTV lending remains one of the areas where competition can make a meaningful difference because buyers without large deposits have fewer options.
It also means buyers should not automatically assume they need to wait until they have saved a 15% or 20% deposit before investigating whether buying is possible.
A 5% or 10% deposit mortgage may cost more, but whether waiting is worthwhile depends on the individual's circumstances, how quickly they can save and what happens to house prices and mortgage rates in the meantime.
Equally, someone close to the next LTV threshold should check whether adding slightly more to their deposit could significantly improve the mortgages available.
Affordability remains just as important as the deposit itself. Two buyers with the same deposit can still be offered very different mortgage amounts because lenders consider income, debts, regular commitments and the overall strength of the application.
What about people remortgaging?
The same principle applies to homeowners approaching the end of a fixed deal.
A rate cut from one lender does not automatically mean that lender will offer the best remortgage.
Existing customers may have access to a product transfer with their current lender, while moving to another lender could open up cheaper rates or different criteria.
If your current deal is approaching its end, our guide to what happens at the end of a fixed-rate mortgage explains the main options.
You can also read our full guide to how remortgaging works, including the difference between switching lender and taking a new deal with your existing lender.
Fees matter too.
A mortgage with a slightly lower interest rate but a large product fee can cost more overall than a higher-rate fee-free mortgage, particularly where the mortgage balance is relatively small.
Borrowers approaching the end of a deal should therefore compare the total cost of the mortgage, rather than focusing solely on the headline interest rate.
The bigger picture: lenders are still competing
The encouraging part of the latest HSBC and Gen H announcements is not necessarily the size of any individual reduction.
It is the fact that lenders are still prepared to compete for borrowers.
Gen H is deliberately targeting 90% and 95% LTV customers, while HSBC is making changes across a much wider range of lending.
That competition can create opportunities even when average mortgage rates remain relatively high.
For borrowers, however, it makes comparing mortgages more important rather than less important.
A headline saying mortgage rates have been cut tells you what is happening in the market.
It does not tell you whether that particular deal is the cheapest or most suitable mortgage for you.
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The most significant part of these changes may be Gen H's decision to concentrate its reductions on borrowers with 5% and 10% deposits.
The gap between low-LTV and high-LTV mortgage pricing remains substantial, and that gap disproportionately affects first-time buyers who have not built up property equity or received help towards a larger deposit.
More lender competition at 90% and 95% LTV would therefore be welcome.
But borrowers should avoid making decisions based on one rate cut or one lender. Deposit size, affordability, fees and lender criteria can have just as much impact on the mortgage ultimately available.
Thinking about buying or remortgaging? Start your mortgage enquiry and find out what options may be available for your circumstances.
Mortgage rates and products can change at short notice. Eligibility depends on individual circumstances and lender criteria. Your home may be repossessed if you do not keep up repayments on your mortgage.
