Santander has revealed it will be slashing first-time buyer rates from tomorrow, with selected fixed 85% and 90% loan-to-value (LTV) rates dropping below 4%. However, brokers have cautioned borrowers that “mortgage rate increases will be inevitable” following swap rates experiencing double-digit rises at the start of the week and that “a window of opportunity” could soon close.

On Monday, the two-year and five-year swaps rose 10.8bps and 8.6bps respectively as markets factored in the possible inflationary impact of developments in the Middle East, which would maintain the base rate at elevated levels for an extended period and potentially derail a March rate reduction by the Bank of England.

Brokers state borrowers must recognise that when lenders announce rates, they are frequently rates that were established several days, or even a week previously, and may not represent current developments and macroeconomic conditions.

Gen H was another lender to reduce rates today. For the second occasion in three weeks, the lender has implemented a series of rate reductions up to 20 bps across its complete range – including New Build Boost, its market-first private sector substitute for Help to Buy.

Justin Moy, managing director at Chelmsford-based EHF Mortgages, said: “What the Santander rate cuts highlight is that, for most lenders, the decision to change pricing could be made up to a week beforehand.

“Equally, for borrowers, if this creates a small window of opportunity, it may be worth jumping on before prolonged Middle East troubles cause a rate increase.

“Overall, these cuts offer some good news for borrowers, but don’t be surprised if they disappear quickly, as lenders will be watching rising swap rates like a hawk.”

Ken James, director at London-based Contractor Mortgage Services, agreed: “Santander has cut its first-time buyer rates, but borrowers should be aware that the door may already be closing.

“At face value, this move by Santander is a strong signal of intent. Sub-4% rates at higher LTVs are psychologically important and will undoubtedly grab attention among buyers who have been waiting for an opportunity to step in.

“For first-time buyers in particular, this represents a genuine opening to secure competitive pricing with smaller deposits. However, the bigger focus should be the timing of this announcement.

“Swap rates have been edging upwards in reaction to escalating tensions in the Middle East, and markets are repricing risk accordingly. If that upward pressure continues, lenders may struggle to sustain such aggressive pricing.”

Steven Greenall, mortgage and protection adviser at Rayleigh-based Protect & Lend, a broker, believes climbing swap rates will halt the recent wave of mortgage rate reductions and that the Bank of England may feel it acted somewhat hastily with its inflation projections.

He said: “Andrew Bailey’s recent comment that inflation falling to 2% is ‘baked in’ is looking increasingly ridiculous as the UK looks set to face a huge increase in the import price of Liquefied Natural Gas (LNG) due to Qatar halting production, while the oil price is also surging.”

However, Nouran Moustafa, practice principal & IFA at Roxton Wealth, reckons Monday’s swap rate volatility represents temporary market jitters rather than a fundamental change.

She continued: “Whenever we see geopolitical escalation, markets react first and analyse later. Gold rises, equities wobble and swaps move sharply as traders price in potential inflation risk. But that doesn’t automatically translate into lenders rushing to reprice mortgage products.

“Lenders have spent the last three years navigating instability. What they want now is consistency. The mortgage market has only recently regained a degree of confidence, and there is very little appetite to disrupt that unless the move in funding costs proves sustained.

“At most, we may see some lenders pause further rate cuts while they assess conditions. If there are increases, they are likely to be marginal tactical adjustments rather than aggressive repricing.

“Mortgage pricing is driven by sustained trends, not single trading sessions. Unless swap rates remain elevated for a prolonged period, I’d expect lenders to choose stability.”

Wesley Davidson, Owner at Bristol-based Fox Davidson, a broker, echoed Moustafa’s assessment: “Swap rates moving 10bps in a day gets attention, but one day’s movement doesn’t set the week’s direction.

“Markets are reacting to geopolitical risk, which tends to be sharp but short-lived unless it feeds through into sustained inflation expectations.

“Santander cutting rates suggests lenders aren’t panicking, they’re still competing for business. My expectation is that any rate increases this week will be modest and targeted, and the monthly trend downward remains intact.

“If the Middle East situation escalates materially, that changes. But we’re not there yet.”

Meanwhile, Craig Fish, director at London-based Lodestone Mortgages, described the events of the past four days as a textbook illustration of why borrowers should avoid attempting to time the market on mortgage rates.

He said: “Swap rates have jumped as markets quickly priced in the inflation risk linked to Middle East tensions, particularly the potential for higher energy prices.

“While Santander’s reductions at higher LTVs show competition remains strong, lenders won’t ignore a sustained rise in funding costs. If swap rates stay elevated this week, we could see mortgage pricing stabilise or, worse, edge slightly higher rather than continue falling.

“Mortgage rates are increasingly sensitive to global events, and this is another reminder that trying to time the market rarely works. Borrowers should focus on securing a deal that suits their own circumstances rather than chasing headlines.”

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