Halifax leads the way with price cuts as markets expect interest rates to peak higher than previously anticipated.

Mortgage rates are continuing to decrease, even as City traders anticipate more interest rate hikes from the Bank of England. Halifax, the UK’s largest mortgage lender, has just announced another reduction in its prices, with these cuts set to take effect from 21 August.

According to Moneyfacts, the average two-year fixed-rate mortgage is now 6.77%, a slight drop from 6.79% the previous day. The five-year fixed-rate mortgage has also fallen to an average of 6.26%, down from 6.28%. These reductions are part of a broader trend, with Halifax’s latest move following a price cut just over a week ago.

Clive Read, owner of mortgage brokerage Goldmanread, noted that other large lenders might follow suit with further reductions. He explained, “Halifax has the capacity to lower rates while still maintaining a profitable mortgage portfolio. Being part of the largest banking group in the UK, they also have an obligation to support homeowners, which could prompt further cuts from other major lenders, though smaller players may not be as quick to follow.”

Jamie Lennox, director at Dimora Mortgages, speculated that the cuts might be a response to lenders’ failure to meet targets after rapidly raising prices earlier in the year. “It’s a positive sign for the mortgage and property market,” he said. “With core inflation remaining stubborn, markets now expect further rate hikes. Lenders could be trying to catch up after an initial slowdown in new mortgage applications caused by those sharp price increases.”

Despite the falling mortgage rates, traders now expect the Bank of England’s interest rates to peak at 6% or 6.25%, significantly higher than the anticipated 5.75% just a week ago. This shift is driven by persistent wage growth and stubborn core inflation. Since mortgage rates are closely linked to the Bank of England’s base rate, the anticipation of further hikes is influencing lender pricing strategies.