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Major high street lenders are cutting their mortgage rates after the Bank of England Governor said interest rates were nearing their peak.
NatWest’s mortgage rates will fall by up to 0.3 percentage points on Friday, while TSB’s will fall by an even greater 0.5 percentage points.
It follows Andrew Bailey’s comments to MPs on Wednesday that rates were “much nearer now to the top of the cycle” following 14 consecutive rises in the Bank Rate since the end of 2021.
Ahead of the next Monetary Policy Committee meeting, markets are slashing bets on another rate rise.
This is the second time NatWest has cut its rates this week, after announcing reductions of up to 0.55 percentage points to take effect on Tuesday. The high street lender followed rival HSBC, which hours earlier had slashed its rates too.
Craig Fish, of Lodestone Mortgages, said borrowers should “expect more of the same” over the next couple of weeks following Mr Bailey’s comments.
He added: “Dare we say the words, ‘rate war’? Especially considering it’s the second time this week for NatWest, this is certainly a sign that one may be on the horizon as lenders realise they are a long way short of their lending targets for the year.
“These rate reductions are much more newsworthy than some that we have witnessed of late. But the reductions are going to need to be bigger than this to pump some life back into the market.”
It came as house prices fell last month by the most in 14 years as buyers grappled with increasingly unaffordable mortgage costs.
The average cost of a property declined by 4.6pc in the year to August, according to the Halifax house price index, having dropped by 2.4pc in July.
It was the worst decline since 2009 and means the average home is worth £279,569. This is down from £285,044 the previous month and around £14,000 lower than a year ago.
Prices fell 1.9pc in August, marking the fifth consecutive monthly decline and the worst fall since November last year.
Halifax Mortgages director Kim Kinnaird said: “There is always a lag-effect where rate increases are concerned, and we may now be seeing a greater impact from higher mortgage costs flowing through to house prices.”
She added: “Market activity levels slowed during August, and while there is always a seasonality effect at this time of year, it also isn’t surprising given the pace of mortgage rate increases over June and July.”
The Nationwide building society said in its own survey that house prices had dropped by 5.3pc, which was the largest amount since 2009.
It said the value of a typical house fell to £259,153, down £14,600 over the last year.
Economists warned that higher mortgage rates will last for another year doing further damage to house prices.
Imogen Pattison, assistant economist at Capital Economics, said: “If we are right to think that mortgage rates will remain around current levels (5.5pc to 6pc) for the next 12 months, demand will remain weak which we think will cause a further 5.5pc drop in house prices.
“The fall in both the Halifax and Nationwide house price indices in August is unlikely to be the last.”
House prices fell across every nation in the UK and across nine English regions over the last year.
Northern locations generally proved to be more resilient than areas in the South.
Mortgage brokers placed the blame for falling house prices squarely on higher borrowing costs caused by rising interest rates.
Ranald Mitchell, director of Charwin Private Clients, said: “The effects of the increases in borrowing costs are now very apparent, with property sales harder to achieve and sellers being tempted by lower offers so they can move on.”