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What does cooling inflation mean for house prices and mortgage rates?

Inflation cooled to the lowest level in nearly three years in April, but what exactly does it mean for Britain’s housing market? 
Inflation cooled to the lowest level in nearly three years in April, but what exactly does it mean for Britain’s housing market?

Inflation cooled to the lowest level in nearly three years in April, but what exactly does it mean for Britain’s housing and mortgage market?

The Office for National Statistics (ONS) said on Wednesday that consumer price index inflation slowed to 2.3 per cent during the month of April, down from 3.2 per cent in March.

The figure is close to the Bank of England’s target figure of two per cent, but ahead of economists expectations of 2.1 per cent.

How does this impact mortgages? 

The higher-than-expected inflation reading could deter the central bank from cutting interest rates, which have been held at 5.25 per cent since last August.


Richard Donnell, executive director at Zoopla, told City A.M. that mortgage rates could remain in the four to five per cent range as a result.

He said: “Mortgage rates are set to remain in the 4.5-5 per cent  range where they are currently.

“The housing market is seeing increasing levels of housing activity, but house prices remain broadly flat and are expected to remain unchanged over 2024.”

Today, according to Money Facts Daily, the average two-year fixed residential mortgage rate is 5.93 per cent, way ahead of the 3.03 per cent charge recorded in 2022.

High street lenders reduced the price of some deals in January amid hopes the Bank of England would cut rates – but they soon went up again as expectations changed.

Matt Smith, Rightmove’s mortgage expert said: “Mortgage rates are still higher than this time last year, but hopefully this is the first domino to fall as we head towards lower mortgage rates in the second half of the year.”

“There’s been some to-ing and fro-ing over whether we’ll see a summer Base Rate cut, but today’s news will likely reinforce some of the positive words coming from the Bank of England in recent days.”

How has the housing market been holding up so far this year? 

Sentiment in the housing market has remained relatively positive this year despite mortgage rates rising.

New government data has shown house prices grew for the first time since last summer in March, while private rents cooled from the record highs recorded at the start of the year.

According to the latest house price index from HMRC Land Registry, house prices have risen 1.8 per cent over the past year, taking the average UK house price to £283k – the first annual increase in prices since the year to last June.

The HMRC Land Registry house price index is based on completed sales rather than advertised or approved prices, which makes it a more accurate reading of market sentiment.

However, the figure falls in line with other reports, such as Rightmove’s, which said house prices are slowly creeping up.

Housebuilders such as Vistry have also increased the number of homes it plans to build throughout the year, as demand increases. 

Myron Jobson, senior personal finance analyst, interactive investor, said: “Inflation has a direct impact on interest rates.

“When inflation is low, the Bank of England is less likely to hike interest rates, which typically translates to lower mortgage rates. This reduction in borrowing costs makes mortgages more affordable.”

He added: “However, the inflation reading doesn’t determine the movement of interest rates on its own. Wage growth and the state of the economy as measure by GDP are also significant contributing factors.”

“Low inflation helps maintain the value of your money, meaning your income stretches further. For homebuyers, this increased purchasing power can make it easier to save for a house deposit and cover other related costs.”