NatWest and TSB cut mortgage rates despite base rate cut delay looking more likely

Two more major banks have announced they will lower mortgage rates as mortgage costs continue to fall.

NatWest is cutting prices on some products by up to 0.23 percentage points and TSB is cutting deals by up to 0.15 percentage points, after already cutting rates at the start of the week.

This comes despite the Bank of England now being more likely to make its first rate cut in September rather than August, according to the latest forecasts.

Markets are now pricing in a 25 percent chance of bank rate cuts next month.

The Bank of England’s Monetary Policy Committee (MPC) is concerned about high inflation in the services sector and high wage growth.

Paul Dales, chief UK economist at Capital Economics, said: ‘The Bank of England expected services sector inflation to fall by 0.2 percentage points in June, but that did not happen.

‘It is therefore not self-evident that the central bank can ignore part of the persistent inflation in the service sector.’

‘Furthermore, central bankers may also be concerned about the possibility that more of the recent uptick in activity is being driven by demand rather than supply. If so, that would not bode well for continued inflation going forward.’

Nicholas Hyett, investment manager at Wealth Club, added: ‘Wages growth in the UK may be starting to slow, although all sectors continued to report above-inflation wage increases – from a low of 3 per cent in construction to 6.7 per cent in finance and business services.

‘That’s great news for workers, but less good news for the Bank of England, as it perpetuates stubbornly high inflation rates in the services sector.’

Why are mortgage rates still falling?

Even now that the first rate cut has been postponed again, lenders appear willing to lower mortgage rates.

Ahead of NatWest and TSB today, Barclays, Halifax, Nationwide, HSBC and Satander are among those who have cut mortgage rates in recent weeks.

This is partly due to sonia swaps, the benchmark that banks and building associations use to determine the price of fixed-rate mortgages and savings agreements.

Sonia swaps essentially show what financial institutions expect future long-term interest rates to be and base their pricing on that.

Mortgage lenders enter into interest rate swap agreements to protect themselves against the interest rate risk associated with providing fixed-rate mortgages.

Jack Tutton, director at SJ Mortgages, told the Newspage news agency: ‘TSB and NatWest are following the lead of several other lenders by cutting their fixed interest rates.

‘Market trends continue to decline, even after yesterday’s inflation news and the diminishing likelihood of a base rate cut in August.

‘Swap rates are still lower than a month ago, so we hope they will fall further.’

However, it is not just the money markets that influence mortgage prices. Lenders also want to do business and to do so, they have to compete on price with other lenders.

Justin Moy, managing director at EHF Mortgages, said: ‘Further rate cuts show there could be a competitive battle over the summer from large lenders looking to capture customers on smaller margins.

While the base rate cuts may be slightly less acute, lenders believe they are still on the horizon.

‘This shows that pricing is not just about the cost of funds. Lenders will also use pricing to manage workloads and may be in a better position to accept volume in the coming months.’

What are the NatWest and TSB mortgage reductions?

Most notable are the reductions in mortgage rates at NatWest.

The lowest five-year fixed-rate product, aimed at home buyers with a down payment of at least 40 percent, is falling from 4.29 percent to 4.14 percent.

To put that into context, according to Moneyfacts, the average five-year fix on the market is currently 5.49 per cent.

NatWest’s deal, which carries a fee of £1,495, is now the second lowest rate on the market. Buyers can also opt for a fee-free product at 4.28 per cent.

Only Barclays offers lower. The 4.09 per cent five-year fix also comes with a smaller fee of £899.

Someone buying on NatWest’s 4.14 per cent deal and needing a mortgage of £200,000 could expect to pay £1,071 a month over a 25-year term.

Compare the same person to the average rate and they would pay £1,227. That works out to a saving of £156 a month, or £1,872 a year.

People buying with a 25 per cent deposit can now get an interest rate of 4.38 per cent from NatWest, up from 4.49 per cent. There is a £995 fee.

NatWest’s two-year fixed rates are now also very competitive for those buying with a minimum deposit of 40 per cent or 25 per cent.

As for homeowners coming to the end of their current deal, NatWest has also cut rates by up to 0.18 percentage points on its two-year and five-year fixed rate products – aimed at people refinancing their mortgages.

TSB has cut interest rates for the second time this week. Changes have been made to a number of schemes aimed at homebuyers, first-time homebuyers and those refinancing their mortgages.

Ranald Mitchell, director at Charwin Mortgages, told Newspage: ‘While the latest rate cuts from TSB and NatWest Bank don’t mean big changes for mortgage seekers, in an increasingly competitive market every move counts. These rate cuts keep them firmly in the race for top spot.

‘If mortgage rates are lowered in this way, countless people will save money and healthy competition will arise between lenders.’