UK banks stand strong against mortgage rate rises. Turmoil in the money markets persists. Smaller profit margins are accepted by banks. They are bigger risk-takers on mortgages. This was confirmed by industry sources. Appetite to lend outweighs concerns on cost of funding.
High Expenses and a Competitive Market
Mortgage hedging costs have increased. The UK government’s borrowing costs surged. It stoked fears around Britain’s fiscal rules. Investors seek better returns from UK debt. UK banks continue to lend without passing on costs. The mortgage marketplace is extremely competitive. Banks are willing to accept lower margins to keep that activity high.
Major Lenders Compete
Lloyds, NatWest, HSBC, Barclays and Nationwide all compete. They want a larger slice of the mortgage market. These assets bring reliable income. They offset bank liabilities. British home prices fell slightly in December. It was the first decline since March, impacting how UK banks strategize their offerings.
Consumer Confidence & Market Sentiment
Others have argued that price declines may invigorate the market. Other data suggest borrowers are worried about the cost of a mortgage. Consumer expectations about affordability fell. It is at its lowest in 2024. Lenders still woo new business. In 2025 a boom in remortgage activity is likely, driven by actions from UK banks.
Banks Manage Risks
Swaps are used by banks to hedge the risks of mortgages. Swap prices for two-year maturities have climbed. Five-year swaps are also higher. Mortgage rates, on average, have barely budged. Policymakers will be glad to hear of this approach. They seek to achieve fiscal goals. They want to send a message to reassure investors. With UK banks in place, inflation slowed last month. This soothed markets.
Lenders Are Still Competing
Prolonged increases in swap rates are squeezing margins. There is still competition for business from lenders. This is occurring despite increasing costs of funding. There is more good news on the inflation front. They bolster expectations for a base rate cut. Earlier this month, HSBC slashed mortgage rates. Many UK banks have made additional updates to certain items; HSBC specializes in competitive rates.
