How to properly rewrite pagination rules for a CPT to avoid 404 error on /page/2

I have custom post type called News and a static page that uses a custom template (page-news.php) and indexes all the news posts under homepage.com/news url.

The problem is that I want to paginate the news page so that homepage.com/news/page/2 would show more posts etc. but it returns a 404 error.

This is how I’m changing the pagination rules in functions.php:

And here is my custom query in the page-news.php: