HSBC reduces mortgage rates - looking for broker reaction

The starting gun has been fired and millions of homeowners will be praying that the high street lending reduction race has begun. It might be too early, however, to know if the rest will join in or if HSBC is just running alone... in the wrong direction.

The reduction of fixed mortgage rates from HSBC is certainly a welcoming sign for the housing market. However, further cuts will be heavily dependent on the next few CPI inflation prints. Borrowers shouldn't be so quick to call victory just yet as there are still a number of challenging obstacles for inflation to navigate before it can achieve its 2% target.

The core elements of CPI, such as services, barely budged in June. If this continues to prove sticky, it could end up dimming the light at the end of the tunnel. As such, borrowers aren't out of the woods quite yet, and further evidence of cooling inflation will be required before confidence can be restored in an already fragile housing market.

I think it's safe to say this could be the start of another rate war. Similar to those we saw early this year after the disaster that was the mini budget. This is fantastic news for homeowners, after months of emails from lenders only sending rates one way - to finally have some more positive news is really great for us brokers. As we have seen other lenders reduce their rates over the past week, now the highstreet are involved I do believe we will see more of this to come. They may not fall rapidly, as this could also shake the market - but a reduction at a time when people are worried about mortgage payments is definitely a step in the right direction.

HSBC leads the way, alongside Accord, with these rate reductions. This is a huge opportunity for lenders to demonstrate that they are not purely focused on profiteering during a difficult time for mortgage borrowers. When interest rate rises are announced, advisers are flooded with product withdrawal emails from lenders. But when there is positive news, such as the June inflation figure, you could hear a pin drop. I would really like to see more lenders follow the same approach. Will that happen? I think it will take more before we see significant reductions across the market. I hope they prove me wrong.

These reductions will come as a huge relief to thousands of mortgage holders who will have had sleepless nights in recent weeks over the fear of how high rates could go. HSBC are the biggest lender to reduce rates so far and hopefully should fuel more of the big 6 lenders to follow suit in the days and weeks to come. However, mortgage holders will still need to be mindful the rates on offer will likely be more expensive than they have become accustomed to in recent years and would be prudent to not assume they should hold off so rates can come down further as we have seen twice in the last 12 months they can swing the other way at a drop of a hat.

While smaller lenders started cutting rates last week, we're now seeing larger lenders such as Accord, the intermediary arm of Yorkshire Building Society, and HSBC join the fray with significant rate cuts. This follows the above-expected fall in inflation last week, which has seen money market rates drop significantly. With inflation improving, cost of funds falling and two major lenders pricing accordingly, it's likely other lenders will follow suit before too long.

HSBC is the first major bank behind Accord to announce a rate reduction. This is great news for borrowers and it will be interesting to see how the other lenders react. Santander announced a rate increase yesterday, so it will be interesting to see if they have a re-price over the coming days.

There's every chance mortgage rates will fall for the next few weeks at least. After last week's much-improved inflation figures, the Bank of England base rate is not expected to rise as much as previously predicted, which should allow lenders to slowly lower their fixed-rate products and provide a much needed glimmer of light at the tunnel for mortgage borrowers.

In a market starved for new mortgage business, expect other high street lenders to match HSBC's recent rate cuts - competing on price is the game now.