The move follows a slew of cuts late last year from the likes of Santander, Virgin Money and Barclays, despite expectations that the Bank of England will now cut its base rate more slowly than was previously expected.
Liam O’Hara, head of mortgages at First Direct, said that the bank had deliberately applied some of the biggest cuts to higher loan-to-value (LTV) mortgages “to support those with smaller deposits making their first steps onto the ladder”. Cuts to these mortgages were up to 0.29 percentage points, he said.
O’Hara highlighted the five-year fixed rate standard mortgage at 90% LTV, which is now priced at 4.74% with a £490 fee.
The most significant reduction is available for remortgage customers on the two-year fixed standard mortgage at 85% LTV, now available at 5.04% with a £490 fee.
“We will continue to review our pricing regularly throughout the year to ensure we offer the best value we can for our customers,” O’Hara said.
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First Direct only offers its mortgage rates directly to consumers, not through brokers.
More cuts to come?
The cut comes as rival lender Halifax revealed a 3.3% increase in house prices for the last calendar year, with Amanda Bryden, the bank’s head of mortgages, saying that many homeowners were delaying marketing their properties in anticipation of there potentially being even more cuts to rates.
She said: “Mortgage affordability will remain a challenge for many, especially as the bank rate is likely to come down more slowly than previously predicted.”
Mortgage broker Nick Mendes, from John Charcol, said that although he expects to see further cuts in the coming weeks, these will be “modest, with only minimal changes to the best deals currently available”.
“Fixed rate mortgages have already priced in some expectations of a Bank of England rate cut in 2025. At present, both two- and five-year fixed rates are available below the 4.75% bank rate, with some options under 4.25%. This indicates that lenders are positioning themselves for a more stable rate environment,” he added.
At present, the financial markets are pricing in just one rate cut from the Bank of England – in February – but some believe there will be more, which would give further scope for rate cuts.
Mendes added that any cuts to rates in coming months may not be applied evenly across product types, with two-year fixed rate products expected to become cheaper, reversing the current trend of these shorter-term mortgages being about 0.15% more expensive than five-year fixes.
“The most significant reductions, however, are likely to come from tracker mortgages, as their rates will adjust directly in line with any Bank of England rate cuts,” he said.
He also urged customers who want to take advantage of cuts to act quickly.
“Given the slim margins lenders are working with, we’re likely to see rapid repricing – reductions could quickly be followed by increases should we see any adjustments in market behaviour. As such, it’s essential for borrowers to act swiftly when they see a competitive deal, rather than delaying and risking missing out,” he added.
