A major high street bank has announced it will reduce mortgage rates by up to 0.39 percentage points. NatWest revealed that there will be widespread rate cuts across its two-year and five-year fixed products, which will benefit home buyers, households remortgaging, and buy-to-let landlords alike.
Most of NatWest’s changes will be within the 4-5 per cent range, with the lowest five-year fixed rate starting from a competitive 4.1 per cent, available from tomorrow. This move comes as part of the bank’s strategy to offer more attractive rates in a shifting market.
Mortgage rates have been rising since early October, with the lowest rates climbing by nearly 0.5 percentage points during this period. At the moment, the lowest five-year fix available through a major lender stands at 4.14 per cent from Nationwide Building Society, while the lowest two-year fix is 4.22 per cent.
The timing of NatWest’s rate cuts coincides with recent comments from the governor of the Bank of England, who indicated that there are likely to be four interest rate cuts next year, as inflation continues to ease. This announcement raises expectations that mortgage rates could decrease further in the near future, offering potential savings for borrowers.
Where will mortgage rates go next?Â
Speaking at the Global Boardroom conference with the Financial Times, Andrew Bailey, the governor of the Bank of England, confirmed the central bank’s forecast of four quarter-point interest rate cuts next year. If these cuts come to fruition, the base rate would decrease to 3.75 per cent by the end of 2025, down from its current level of 4.75 per cent. This marks a significant shift in the Bank’s outlook, as it signals an easing of the current tight monetary policy.
Bailey’s comments represent a change from the broader market consensus, which had previously expected interest rates to fall to 4 per cent by the end of 2024. His updated forecast, while still cautious, suggests that the central bank is more confident in controlling inflation and that the current high rate environment may not last as long as initially expected. The news of potential rate cuts has caught the attention of mortgage lenders, borrowers, and investors alike.
These anticipated future rate cuts are already somewhat reflected in the pricing of fixed-rate mortgages, particularly in the five-year fixed product range. This is why the lowest-priced five-year fixed rates are now hovering just above 4 per cent, a rate that is notably lower than the Bank of England’s current base rate of 4.75 per cent. This pricing strategy shows that lenders are already adjusting their expectations based on the central bank’s future monetary policy.
Despite the rate cuts being priced into mortgages, NatWest’s decision to cut its rates by up to 0.39 percentage points could represent a turning point in the market. According to some brokers, the lender’s move may signal a shift in the broader mortgage landscape, with other major players potentially following suit. If more banks and building societies begin to reduce their rates, it could lead to more competitive pricing across the board, benefiting homebuyers, those remortgaging, and even buy-to-let landlords.
Mortgage rates have been on the rise since early October, with the lowest rates increasing by close to 0.5 percentage points. However, NatWest’s rate cuts, which will take effect soon, offer some relief to borrowers who have been struggling with higher borrowing costs. This move comes after significant discussions about the future direction of interest rates, especially with inflation showing signs of easing and the economy stabilising.
As the Bank of England’s future interest rate cuts are integrated into the market’s expectations, it remains to be seen whether this trend of rate reductions will continue and how it will impact the housing market. With more banks adjusting their mortgage offers, prospective buyers and homeowners looking to remortgage will likely have more options available to them, which could ease the financial pressures many have been facing.
Ben Perks, managing director at Orchard Financial Advisers, expressed an optimistic outlook during an interview with the news agency Newspage. He stated, “This week has been mostly positive. For the first time since the Budget, we’ve seen more reductions than increases.” This marks a noticeable shift in the market dynamics, which Perks believes is a sign of positive change.
He went on to highlight the potential for a brighter future, adding, “It definitely feels like the winds are changing, and hopefully they’ll continue to do so. Hopefully, a period of interest rate calm over the next few weeks will propel us into the new year full of positivity.” Perks’ comments reflect growing confidence in the market, with many hopeful that the trend of interest rate cuts will continue and provide relief to homeowners and borrowers alike.
Similarly, Daniel Hobbs, managing director at financial adviser New Leaf Distribution, shared his thoughts on NatWest’s decision to cut rates. He explained, “A major lender like NatWest cutting rates is sure to send signals to other lenders.” Hobbs sees this as a significant development, as it could inspire other banks and lenders to follow suit, potentially leading to further rate reductions across the industry.
Hobbs also pointed out a broader shift in the market, stating, “For a number of months ahead of the Budget, rates were falling, and after a month-long hiatus, the mood in the mortgage market looks to be improving.” His observation reflects a change in sentiment that suggests the mortgage market may be on the cusp of recovery, driven by recent rate cuts and a more stable economic outlook.
Justin Moy, managing director at EHF Mortgages, has observed a notable improvement in swap rates, which play a key role in determining the pricing for fixed-rate mortgages. As of 3 December, five-year swap rates had decreased to 3.78%, a significant drop from being above 4% towards the end of November. This decline in swap rates is seen as a positive development, signalling a potential for lower rates on offer for borrowers in the near future.
In addition to the changes in swap rates, Moy credits the increased competition in the mortgage market as another factor driving the reduction in rates. He pointed out that the current environment of heightened competition has enabled lenders like NatWest to offer more attractive deals to borrowers. This, in turn, is providing some relief and “end-of-year cheer” for those seeking mortgage deals, as borrowers can now benefit from more favourable terms.
Moy speculated that the recent rate cuts could signal the beginning of a broader trend as lenders prepare for the new year. “This may be the start of a January push by lenders to grab some market share,” he remarked, suggesting that this could be a strategic move for lenders aiming to establish themselves early in 2025. The mortgage market tends to see a flurry of activity at the start of the year as homeowners and landlords look for new deals, and lenders are eager to meet their targets and secure a healthy portion of this business.
As millions of borrowers are expected to seek new deals in the coming months, this period becomes especially important for lenders. Moy explained that lenders must act quickly to attract new clients and secure their position in the competitive market. With many borrowers coming to the end of their fixed-rate terms or seeking better deals, the next few months are a critical time for lenders to offer competitive rates and products that appeal to a wide range of customers. This period could well set the tone for the mortgage market in 2025, and lenders who manage to attract the right clients during this time will be well-positioned for the year ahead.
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