Nationwide cuts mortgage rates to below 5%… as Bank chiefs clash over outlook

Homeowners can lock into a two-year mortgage rate below 5 per cent for the first time in months as lenders continue to slash the cost of borrowing.

While senior Bank of England officials clash over the outlook for interest rates, Nationwide Building Society has today reduced the cost of its two-year fixed deals for new customers by 0.25 percentage points.

Homeowners with a 40 per cent stake in their home can now secure a two-year deal at 4.99 per cent with a £999 fee. 

This follows a flurry of rate cuts from Royal Bank of Scotland, NatWest, HSBC and Virgin Money earlier this week.

But the average two-year fixed-rate deal was still 6.24 per cent yesterday, according to MoneyfactsCompare. 

And Nationwide said it was ‘the first major high street lender to once again offer a two-year fixed rate at sub-5 per cent’.

Lewis Shaw, of broker Shaw Financial Services, described the move as a ‘watershed moment’ for the mortgage market.

‘This means we see other lenders follow suit, leading to a much more competitive market over the next few months,’ he said.

Borrowing costs soared as the Bank of England raised interest rates from a record low of 0.1 per cent in December 2021 to 5.25 per cent in a bid to tackle sky-high inflation.

The Bank has left rates unchanged at its last two meetings, however, fuelling hopes borrowing costs have peaked. 

But speaking at an event in Dublin yesterday, governor Andrew Bailey insisted ‘it’s really too early to be talking about cutting rates’.

Meanwhile earlier in the week the central bank’s chief economist Huw Pill said that the idea of a rate cut in August next year ‘doesn’t seem totally unreasonable’. 

Those remarks stoked excitement in bond markets as they seemed to herald the first signal from the Bank that cuts really were on their way.

That view appears to have been mirrored in the mortgage market with the cost of borrowing coming down. 

Clash: Bank of England governor Andrew Bailey sought to quash talk of interest rate cuts just days after chief economist Huw Pill hinted at a rate cut as early as August next year

But Bailey’s comments were backed by the International Monetary Fund, which argued that rates in the UK ‘will need to stay high for an extended period’.

It came amid the latest evidence that high rates are dragging on the UK economy. 

A poll by the Royal Institution of Chartered Surveyors (RICS) showed new home buyer enquiries fell for the 18th month in a row in October and the ‘deeply negative’ picture for house prices looks set to continue with further falls over the next 12 months.

A report from PwC predicted that figures out tomorrow will show the economy shrank by 0.1 per cent in the third quarter. ‘The primary reason for the UK’s sluggish growth is monetary policy,’ PwC said.

After the apparently conflicting signals coming from Bailey and Pill, markets now see rates coming down a little sooner than they did before. 

Traders are betting on a just over 50 per cent chance of a June cut with a second seen likely next November. 

However Bailey looked to quash speculation, saying: ‘Policy is going to have to be restrictive for an extended period.’