Barclays and Santander announce cuts to

UK mortgage rates

Barclays and Santander have announced cuts to their mortgage rates, adding to momentum
for cheaper UK home loan deals after HSBC and Halifax reduced rates last week. Santander
led its announcement with a sub-4 per cent deal available to new and existing customers
with a deposit of at least 40 per cent on a five-year fixed rate mortgage. It said its residential
fixed rates would fall by up to 0.82 percentage points from Wednesday.

Barclays will from Wednesday offer a two-year fix at 4.17 per cent, down from 4.62 per cent,
for borrowers with a 40 per cent deposit. Its rates will fall by up to 0.5 percentage points
across its residential range, and it will offer those with a smaller 25 per cent deposit a two-
year rate of 4.2 per cent, down from 4.7 per cent. The Co-operative Bank slashed rates on
Tuesday by more than one percentage point for some deals. Existing customers looking to
remortgage can now access a two-year fix starting from 3.85 per cent, while five-year deals
start at 3.74 per cent. For new customers the equivalent rates are 4.22 per cent and 3.84 per
cent respectively.

The changes follow rate cuts announced last week by HSBC, Halifax and Leeds Building
Society across their residential ranges. Mortgage rates have been falling for several weeks
as competition between lenders intensifies. The latest cuts follow a drop in market swap
rates in December, after investors predicted a quickening pace of falls in inflation and Bank
of England interest rates over the coming year. Lenders use swap rates to guide their pricing
of fixed-rate mortgages. Adrian Anderson, director at broker Anderson Harris, said: “The
market is predicting that the base rate might come down quicker than the Bank of England is
suggesting . . . Over the short term, I think we’re going to continue to see a reduction in fixed-
term pricing from lenders.”

Chris Sykes, technical director at mortgage broker Private Finance, said a number of lenders
had yet to reduce rates, so there were likely to be further cuts, though these were unlikely to
be “dramatic”. He added that some rates offered in the latest round of cuts were below the
relevant swap rate, a highly unusual position for lenders to be in. “This is very rare, so we
don’t expect these rates to be around for long.”

Full article:https://www.ft.com/content/f8d3677e-622b-4db4-ae84-19abd05ea87f
This abstract has been adapted from the Financial Times, written on January 9th 2024.

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Pearson Edexcel GCSE Business
This case study relates to the following topic areas of the course specification:
1.1.1 The dynamic nature of business
1.2.4 The competitive environment
1.5.4 The economy and business
1.5.5 External influences

Recommended research activities:

What’s the difference between fixed rate and variable rate mortgages?
How do interest rates affect consumers, and in turn the wider economy?

Exam style questions:

1. What best defines the term competitor? (1)

A. Any local business.

B. A business offering the same or similar products.
C. A different business selling to the same customers.
D. A business selling different products.
2. Analyse the likely impact on Barclays of falling interest rates. (6)

Additional question using the full article:

Analyse the impact on Barclays of increased unemployment. (6)

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for free. Sign up or check if you are registered at www.ft.com/schoolsarefree
Model responses to exam style questions:

1. What best defines a competitor? (1)

B. A business offering the same or similar products (knowledge and
understanding).

2. Analyse the likely impact on Barclays of falling interest rates. (6)

The first impact on Barclays of falling interest rates is increased customers for
mortgages (knowledge and understanding). This means more people will want to
buy a house (linked strand of development & applied to Barclays selling mortgages).
This is because the cost of borrowing money to buy a house from Barclays will be
cheaper as the amount of interest they will need to repay is lower than it has been
previously (linked strand of development & applied to Barclays selling mortgages).
Therefore, a fall in interest rates will attract more customers to want to borrow
money, in the form of a mortgage from Barclays (linked strand of development &
applied to Barclays selling mortgages).

The second impact on Barclays of falling interest rates is that they will not make as
much profit in interest payments from their customers (knowledge and
understanding). This is because Barclays customers will be repaying less in their
mortgage payments each month (linked strand of development & applied to Barclays
selling mortgages). This will lead to lower revenues for Barclays and they might
need to cut back with the amount of banks they have open and staff they employ to
still make a profit. (linked strand of development & applied to Barclays selling
mortgages). Therefore, a fall in interest rates can negatively affect Barclays who are
a profit making organisation.

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