Mortgage rates return to pre-Liz Truss era as NatWest launches new deal
The lowest fixed rate mortgages have fallen to levels not seen since Liz Truss was Prime Minister.
The lowest five-year fixed rate mortgage is now 3.77 per cent after NatWest cut rates yesterday.
According to analysis by Rightmove, this is the lowest level for a five-year fixed rate since the mini budget in September 2022.
Although mortgage rates first started to rise at the end of 2021, interest rates rose after the mini-budget at the end of September 2022.
NatWest has launched a mortgage at 3.77%, which is the lowest five-year fixed rate since before the mini-budget in September 2022 – when Liz Truss was Prime Minister
The pound plunged after then-finance minister Kwasi Kwarteng announced a series of unfunded tax cuts that sent bond markets into turmoil.
After Liz Truss stepped down in October, new Chancellor of the Exchequer Jeremy Hunt reversed almost all of the mini-budget announcements, calming markets.
Natwest’s five-year fixed mortgage deal at 3.77 per cent, with a fee of £1,495, is available to homebuyers who put down a minimum 40 per cent deposit.
Someone with a £200,000 mortgage repaid over 25 years could expect to pay £1,030 a month under NatWest’s deal.
First-time homebuyers and those looking to buy a home with a smaller down payment can now also benefit from interest rates not seen since the Prime Minister’s 44-day term in office two years ago.
Those buying with a 25 percent deposit can secure 3.93 percent at NatWest or 3.95 percent at Barclays if they fix the loan for five years.
Halifax, Nationwide, Virgin Money and HSBC also all offer five-year fixed-rate loans below 4 per cent for buyers with a 25 per cent deposit.
If you buy with a 15 per cent deposit, you can get an interest rate of 4.17 per cent at Barclays, while buyers with a 10 per cent deposit can get 4.59 per cent at Nationwide or Virgin Money.
According to Rightmove, the average five-year interest rate is now 1 percentage point lower than a year ago. The average person with a 40 percent deposit can now get an interest rate of less than 4 percent.
Paying a mortgage rate of 4 percent instead of 5 percent can make a big difference to your household budget.
On a £200,000 mortgage paid off over 25 years, that’s the difference between £1,056 a month and £1,169.
On a £400,000 mortgage repaid over 25 years, this is the difference between £2,111 a month and £2,338 a month.
Chris Sykes, technical director at mortgage adviser Private Finance, does not think interest rates will fall much in the short term.
He points out that Sonia swap rates, which influence the price of fixed mortgage rates, have risen in the past week.
Expectations of market interest rates are reflected in swap rates. A swap is essentially an agreement in which two banks agree to exchange one stream of future fixed interest rate payments for another stream of floating interest rate payments, based on a fixed price.
These swap rates are influenced by long-term market forecasts for the Bank of England base rate, but also by the broader economy, internal bank targets and competitors’ prices.
In summary, swap rates are a kind of benchmark that can be seen as a measure of the expected development of interest rates by the market.
On September 2, five-year swaps were at 3.71 percent and two-year swaps were at 4.06 percent. This is a slight increase from August 2, when five-year swaps were at 3.51 percent and two-year swaps were at 3.96 percent.
‘The spreads on some lenders’ fixed rates relative to Sonia swaps have narrowed noticeably as these swaps rose slightly this week and the rate cuts have continued, with HSBC, TSB, Natwest and others cutting rates in recent days,’ Sykes said.
‘Depending on the interest rates lenders charge, some of the most competitive interest rates could soon become unsustainable.
‘These attractive rates could be a strategic move by lenders to capitalise on the traditional post-summer rush, when potential buyers consider moving now that children are back in school and the summer holidays are over.
‘For people planning to purchase or refinance a mortgage in the fall, it may be wise to lock in a rate as soon as possible, as the possibility of further rate hikes in the market cannot be ruled out.’
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