NatWest and TSB cut mortgage rates even as delay in base rate cut looks more likely

Two more major banks have announced they are cutting mortgage rates as home borrowing costs continue to fall.

NatWest has reduced a number of products by up to 0.23 percentage points and TSB has cut offers by up to 0.15 percentage points, after having already lowered rates earlier in the week.

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

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

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

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

‘It is therefore not obvious that the central bank can ignore some of the rigidity of service sector inflation.’

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

Nicholas Hyett, investment manager at Wealth Club, added: ‘Pay growth may be starting to slow in the UK, although all sectors still reported above-inflation pay rises, from a low of 3 per cent in construction to 6.7 per cent in finance and business services.

“This is great news for workers, but less good for the Bank of England, which is supporting persistently high inflation rates in the services sector.”

Why do mortgage rates keep falling?

Even though the first base rate cut has been postponed once again, lenders seem happy to cut mortgage rates.

Before NatWest and TSB today, Barclays, Halifax, Nationwide, HSBC and Santander, among others, have cut mortgage rates in recent weeks.

This is partly due to Sonia swaps, the reference rate used by banks and credit companies to set the price of fixed-rate mortgages and savings transactions.

Sonia swaps essentially show what financial institutions believe the future holds for long-term interest rates and price them accordingly.

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

Jack Tutton, director of SJ Mortgages, told Newspage: ‘TSB and NatWest are following the lead of a number of other lenders in cutting their fixed rates.

‘Market trends continue to be lower even after yesterday’s inflation news and the possibility of a base rate cut in August is diminishing.

‘Swap rates are still lower than a month ago, so we expect to see further reductions.’

However, it is not just money markets that influence mortgage prices. Lenders are also interested in attracting customers and, to do so, they need to compete on price with other lenders.

Justin Moy, managing director of EHF Mortgages, said: ‘The new rate cuts only show the potential for a fightback within traditional lenders over the summer as they look to capture business on thinner margins.

‘While they may be a little less imminent, lenders believe base rate cuts 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 take on volume in the coming months.”

What are the NatWest and TSB mortgage cuts?

NatWest’s mortgage rate cuts are the most notable.

Its lowest five-year fixed-rate product, aimed at home buyers with a deposit of at least 40 per cent, is falling from 4.29 per cent to 4.14 per cent.

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

NatWest’s offer, which includes a £1,495 fee, is currently the second-lowest rate on the market. Buyers can also opt for a 4.28 per cent fee-free product.

Only Barclays offers a lower rate. Its five-year fixed rate of 4.09 per cent also comes with a lower fee of £899.

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

If we compare that same person with the average tariff, they will pay £1,227, which equates to a saving of £156 a month or £1,872 a year.

Those who buy with a 25 per cent deposit can now get a rate of 4.38 per cent with NatWest, up from 4.49 per cent previously. The rate includes a £995 fee.

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

For homeowners nearing the end of their current contract, NatWest has also cut rates by up to 0.18 percentage points on its two- and five-year fixed-rate products, aimed at those refinancing their mortgage.

As for TSB, it has cut rates for the second time this week, introducing changes to a range of offers aimed at home-movers, first-time buyers and those refinancing their mortgages.

Ranald Mitchell, director of Charwin Mortgages, told Newspage: ‘While the latest rate cuts from TSB and NatWest Bank aren’t game-changers for mortgage seekers, in an increasingly competitive market every move matters, and these rate cuts keep them firmly in the race for the top spot.

‘Widespread mortgage rate reductions like this will save countless people money and foster healthy competition among lenders.’