Major lender cuts interest rates in anticipation of the Bank of England’s interest rate decision
A major lender has cut its mortgage rates after inflation fell more than expected and ahead of a key Bank of England meeting.
NatWest has announced it will reduce mortgage deals by up to 0.24% for those who refinance, and some deals by up to 0.07% from tomorrow.
The bank will offer a five-year fixed rate remortgage deal for someone with a loan-to-value (LTV) of 90% at 5.30%, down from 5.54%.
Mortgage holders with a Loan-to-Value value of 60% can get a five-year remortgage deal at 4.48%, up from 4.59%.
The LTV is the percentage of the outstanding mortgage compared to the value of the home.
It comes after the latest inflation figures came in lower than expected, fueling expectations that the Bank of England could cut its key interest rate sooner than expected.
The CPI measure of inflation for February was 3.4% – down from 4% in January and the lowest level since September 2021.
Most economists had expected interest rates to be 3.5%.
Inflation is now moving closer to the Bank of England’s 2% target.
Inflation is a measure of how much the prices of everyday goods such as food and clothing, and services such as train tickets and haircuts, are now compared to a year earlier.
A target of 2% has been set for a steadily growing economy.
It comes ahead of tomorrow’s latest interest rate decision.
The Bank is expected to keep its base rate at 5.25% for the fifth time in a row, but the latest drop in inflation could see it fall sooner than expected.
Lenders tend to price their mortgages in anticipation of what the Bank will do in the future, rather than immediately. Hence NatWest’s decision to reduce some mortgage rates.
Rohit Kohli, director of estate agency The Mortgage Stop, said borrowers would see “some light at the end of the tunnel” after NatWest’s decision to cut rates.
Meanwhile, Ben Tadd, director at Lucra Mortgages, said other lenders could follow NatWest’s lead by cutting rates.
He added: “NatWest is the first major bank to take action on the positive inflation figures released this morning.
“We hope this could be the start of a new interest rate war in the mortgage market.”
It comes after a number of lenders cut mortgage rates in January, ahead of the BoE’s rate cuts this year.
But three major lenders, including Halifax and Santander, raised rates earlier this month after months of fluctuating swap rates, which underlie fixed-rate mortgages.
Other brokers were more cautious as NatWest also announced it would also increase rates on some two-year trackers by up to 0.4% tomorrow.
Tracker mortgages are more tied to the BoE base rate, meaning they can rise or fall at any time, unlike fixed interest rates which remain the same for the life of the deal.
Gareth Davies, director at South Coast Mortgage Services, said: “It is intriguing to observe NatWest’s decision to increase the prices of tracker products, especially when they are experiencing strong demand.”
Many homeowners looking to take out a new mortgage have opted for a tracker in anticipation of a drop in fixed mortgage rates this year.
Economists expect inflation is now likely to fall below the Bank of England’s 2% target in April or May, thanks to the upcoming 12% fall in the energy price cap on April 1.
They said this could pave the way for the Bank to start cutting rates in August or possibly as early as June.
How to get the best deal on your mortgage
Finding the best mortgage deal depends entirely on what’s available at the time, but there are ways to get ahead of the competition.
Usually, the larger the deposit, the lower the interest you can get.
If you take out a new mortgage and your loan-to-value ratio has changed, this could also give you access to better rates than before.
A change in your credit score or an increase in your salary can also help you access better rates.
If you have a fixed rate, you could see higher interest rates at the end of the current term, after the BoE increases rates from 2022 until last year.
And if you’re nearing the end of a fixed deal in the next six months, it’s worth contacting your broker now to lock in a rate.
If they drop between now and the end of your deal, you can always apply for a different rate before taking out a new mortgage.
Do I need to repair?
HERE we take you through the pros and cons of a fixed mortgage agreement.
Positives
- Beat potential interest rate increases – You will not suffer if the Bank of England increases the base rate.
- Your credit will only be checked once during the term – This means that if your score is lowered because you took out a credit card or store card after closing the deal, it will have no effect on your mortgage.
- Protection against changes in credit criteria – If the criteria for the affordability of a mortgage are tightened, you may not be able to refinance at a competitive rate. With a certain term you have more time to meet the criteria.
- Predictability – You know exactly how much your mortgage costs will be over the term, which makes it easier for you to plan.
Cons
- You do not benefit if interest rates fall – You run the risk of missing out on a lower interest rate if the base interest rate falls during this period.
- Early exit fees – Homeowners risk heavy fines if they have to terminate the contract prematurely. These can amount to up to 7% of the remaining balance.
- You will be charged a fee for early payment – If your circumstances change and you wish to make a significant overpayment or pay off the amount early, you will be charged a fee.
- You may be paying too much – Homeowners who have to pay more money generally have to pay higher rates. If you take a deal when you don’t have much left to pay, you could miss out on lower rates and, as a result, you could end up paying more than you need to.
If you leave a fixed deal early, you’ll typically be charged an exit fee, so you’ll want to avoid these additional fees.
But depending on the cost and how much you can save by switching or staying, it may be worth leaving the deal, but compare the costs first.
Use one to find the best deal Mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can do comparison shopping for you, with most offering free advice to help you secure the best deal for you.
Some brokers charge for advice, so ask them first.
It may cost a few hundred dollars, but it could save you thousands of dollars in total on your mortgage.
You will also need to consider the costs of the mortgage, although some have no costs at all, or you can add these to the cost of the mortgage.
But keep in mind that this means you will pay interest on it and it will be more expensive in the long run.
You can use a mortgage calculator to see how much you can borrow.
Please note that if you decide to take out a new mortgage with a new lender, you will need to pass affordability checks.
It can also check your credit file to see if you have repaid previous debts.
You may also need to provide documents such as utility bills, proof of benefits, your last three months’ pay slips, passports and bank statements.
It is possible to avoid new affordability checks by taking out a new mortgage with your existing lender, provided you do not want to borrow more or extend your term.
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