Another major bank cuts mortgage rates: Will cheapest deals head back below 4%?

Latest update: Mortgage price war erupts as Santander sends rates below 4% for first time since November

Another major bank is cutting rates across its mortgage deals.

From tomorrow, NatWest is lowering rates by as much as 0.36 percentage points.

Last week, the Bank of England cut interest rates from 4.75 per cent to 4.5 per cent, but the move by NatWest is likely more to do with its own funding targets and competition from other lenders.

Last week, six major lenders announced they were lowering mortgage rates ahead of the MPC decision on Thursday.

First, Barclays and Coventry Building Society lowered rates on Monday, then Halifax, HSBC and Clydesdale Bank made similar changes on Wednesday, before Yorkshire Building Society lowered its rates on Thursday.

At present, the lowest five-year fix on the market is 4.13 per cent and the lowest two-year fix is 4.23 per cent – both with First Direct.

From tomorrow NatWest is cutting remortgage rates by up to 0.36 percentage points on two-year fixes and up to 0.25 percentage points on five-year fixes.

Home movers will benefit from rate cuts of up to 0.16 percentage points while first-time buyers will see NatWest’s rates drop by up to 0.1 percentage points.

The changes will mean NatWest’s deals are among the best on the market.

For example, its five-year fixed rate remortgage deal for those needing a mortgage to cover at least 60 per cent of their home’s value will fall to 4.14 per cent tomorrow.

The deal, which also comes with a £1,495 fee attached, would mean someone with a £200,000 mortgage being repaid over 25 years will pay £1,071 a month.

Those able to buy with a 40 per cent deposit or more will also be able to secure a rate of 4.23 per cent on a two-year fix with NatWest from tomorrow, again with a £1,495 fee attached. 

Aaaron Strutt, product and communications director at mortgage broker Trinity Financial said: ‘NatWest’s lowest rates are among the cheapest fixed deals on the market. 

‘It was already offering some of the best buy deals so it has clearly lowered rates to get more business and undercut its competitors.

‘We are speaking to a lot of first-time buyers and homeowners who are due to remortgage and they want to know when rates are going to get cheaper. 

‘If the lenders want to ramp up their business volumes this year, many of them know they will need to offer cheaper fixed rates and provide more generous loan sizes on their affordability calculators.’

Will mortgage rates go below 4%? 

The lowest fixed rate mortgages for households have been stuck above 4 per cent since November.

The hope now is that momentum is shifting and that mortgage rates may once again head below 4 per cent in the coming weeks.

The Bank of England cut interest rates last week for the third time since August, and forecasts are suggesting base rate will end the year somewhere between 3.5 per cent and 4.25 per cent.

Sonia swap rates – bank lending rates which influence the pricing of fixed-rate mortgages – have also been falling over the past few weeks, suggesting there may be room for further mortgage rate cuts.

Since 10 January, five-year swaps have fallen to 4.18 per cent to 3.84 per cent and two-year swaps have dropped from 4.31 per cent to 3.97 per cent.

‘The cost of funding mortgages through swap rates has been coming down for a while so we have been waiting for the big lenders to start offering cheaper rates again,’ added Strutt.

‘A Bank of England base rate reduction often prompts the lenders to bring out cheaper fixes but they seem to be taking a while this time. 

‘We still expect to have a sub-4 per cent five-year fix sooner rather than later.’