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‘Light at the end of the tunnel’ as major lender slashes rates ahead of Bank of England interest rate decision
We reveal how you can get the best deal on your mortgage
A MAJOR lender has slashed its mortgage rates after inflation slowed more than expected and ahead of a key Bank of England meeting.
NatWest has announced it will cut mortgage deals by up to 0.24% for those remortgaging and some deals by up to 0.07% from tomorrow.
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The bank will offer a five-year fixed rate remortgage deal for someone with a 90% loan-to-value (LTV) at 5.30% down from 5.54%.
Mortgage holders with a 60% loan-to-value will be able to get a five-year remortgage deal for 4.48% down from 4.59%.
LTV is the percentage of outstanding mortgage compared to the value of the home.
It comes after the latest inflation figures came in lower than expected, feeding expectations the Bank of England may drop its base rate sooner than expected.
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The CPI measure of inflation for February stood at 3.4% - down from 4% in January and the lowest since September 2021.
Most economists had been expecting it to come in at 3.5%.
Inflation is now edging closer towards the Bank of England's 2% target.
Inflation is a measure of how much the prices of everyday goods like food and clothes, and services like train tickets and haircuts, are now compared to a year earlier.
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A target of 2% is set for a steady growing economy.
It comes ahead of the latest interest rate decision tomorrow.
The Bank is expected to hold its base rate at 5.25% for the fifth time in a row, but the latest fall in inflation could see it bring it down sooner than expected.
Lenders tend to price in their mortgages in anticipation of what the Bank will do in the future rather than immediately, hence NatWest's decision to start slashing some of its mortgage rates.
Rohit Kohli, director at broker firm The Mortgage Stop, said borrowers would "see a little light at the end of the tunnel" after NatWest's decision to slash rates.
What is the Bank of England base rate and how does it affect me?
Meanwhile, Ben Tadd, director at Lucra Mortgages, said other lenders could follow NatWest's lead by dropping rates.
He added: "NatWest are the first big bank to act following the positive inflation numbers released this morning.
"Here's hoping this could be the start of a new rate war in the mortgage market."
It comes after a number of lenders cut mortgage rates in January, in anticipation of the BoE cutting rates this year.
But three major lenders including Halifax and Santander hiked rates earlier this month after months of fluctuating swap rates, which underpin fixed-rate mortgages.
Other brokers were more cautious as NatWest also announced it would increase some two-year tracker rates by up to 0.4% tomorrow too.
Tracker mortgages are tied to the BoE's base rate more, meaning they can go up or down at any time, unlike fixed rates which stay the same for the duration of the deal.
Gareth Davies, director at South Coast Mortgage Services, said: "It is intriguing to observe NatWest's decision to raise the prices of tracker products, especially when these are experiencing a surge in demand."
Many homeowners looking to remortgage have opted for a tracker in anticipation of fixed mortgage rates dropping this year.
Economists said inflation is now likely to fall back 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 interest rates in August, or possibly as early as June.
How to get the best deal on your mortgage
Snapping up 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 you have the lower the interest rate you can get.
If you're remortgaging and your loan-to-value ratio has changed, this could also give you access to better rates than before.
A change to 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 rates when you come to the end of the current term after the BoE hiked interest rates from 2022 and into 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 come down between now and the end of your deal, you can always apply for another rate before you remortgage.
Should I fix?
HERE we take you through the pros and cons of a fixed mortgage deal.
Pros
- Beat potential rate rises - You won't feel the brunt if the Bank of England raises the base rate.
- You'll only be credit checked once during the term - This means that if your score is lowered because you've taken out a credit card or store card after you've taken out the deal, then it won't have an effect on your mortgage.
- Protection from changes to lending criteria - If mortgage affordability criteria is tightened then you might not be able to remortgage at a competitive rate. A fixed-term gives you more time to meet the criteria.
- Predictability - You know exactly how much your mortgage payments will be for the duration of the term making it easier to plan.
Cons
- You won't benefit if rates fall - You risk missing out on lower rates if the base rate falls during this time.
- Early exit fees - Homeowners face forking out for hefty penalties if they need to end the contract early. These can be as high as 7% of the remaining balance.
- You'll be charged for paying it off early - If your circumstances change and you want to make substantial overpayments or pay it off in full early, you'll be charged.
- You could end up overpaying - Homeowners with more money to pay off are typically charged higher rates. Locking into a deal when you don't have that much left to pay could see you miss out on lower rates and as a result you could end up paying more than you need to.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal - but compare the costs first.
To find the best deal use a to see what's available.
You can also go to a mortgage broker who can compare for you, with most offering free advice to secure you the best deal for you.
Some brokers charge for advice, so ask them first.
It could cost a couple of hundred pounds but it might save you thousands on your mortgage overall.
You'll also need to factor in fees for the mortgage, though some have none at all, or you can add it to the cost of the mortgage.
But, be aware that this means you'll pay interest on it and it will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember, if you decide to remortgage to a new lender you'll have to pass its affordability checks.
It may also check your credit file to check you have repaid previous debts.
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You may also need to provide documents such as utility bills, proof of benefits, your last three months' payslips, passports and bank statements.
It's possible to avoid new affordability checks by remortgaging to a new deal with your existing lender, provided you don't want to borrow more or extend your term.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected].
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