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Mortgage lenders cut rates after surprise inflation drop

Leading lenders, including NatWest, have cut their mortgage rates after an unexpected fall in UK inflation, and brokers predict that others will follow suit over the coming days.

Banks and financial firms have announced a fresh wave of home loan reductions before Thursday’s Bank of England interest rates decision. NatWest announced reductions of up to 0.31 percentage points across its fixed residential and buy-to-let deals.

It means NatWest will have five-year fixed-rate deals starting at 5.14%, although intense competition means there are cheaper rates than that on offer: during the past few days, Virgin Money and Yorkshire Building Society have launched five-year fixes priced at 4.97% and 4.99% respectively.

The last time that deals of this type priced at below 5% were available was in June.

Other lenders cutting the cost of their new mortgage deals on Wednesday included Bank of Ireland UK and LiveMore Capital.

The latest reductions will improve conditions for homebuyers and those hoping to remortgage onto a new deal.

Many brokers have said a full-scale mortgage price war is underway in the UK, with lenders jostling to attract customers.

Brokers highlighted a two-year fixed-rate deal priced at 3.9% that was launched on Wednesday – the first sub-4% product offered for several months. However, this deal, launched by State Bank of India’s UK arm, is available only to buy-to-let borrowers and has a 5% arrangement fee.

While lenders have been reducing their rates for several weeks, Wednesday’s inflation data appears to have triggered a fresh wave of reductions. The UK’s annual inflation rate unexpectedly slowed to 6.7% last month.

Nicholas Mendes, a mortgage technical manager at the broker John Charcol, said it was “fantastic” to see NatWest give details of fresh rate cuts after previous moves earlier this month. “I suspect this will be one of many reduction notices we see this week,” he said.

Richard Campo, the founder of Rose Capital Partners broker, said: “With the lower-than-expected inflation figures, falling money markets and now even a question mark over whether the Bank of England will raise rates, it is no surprise that major lenders are cutting rates. NatWest are just the first of many that will be doing this in the coming weeks.”

Steven Hargreaves, an adviser at the Mortgage Co, said NatWest was the third large lender this week to reduce its fixed rates, “suggesting the rate war is now truly underway”.

He added: “I would expect several other lenders to look to reduce their offerings in the next week or so.”

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