Yahoo Finance ‘Light at the end of the tunnel’ as mortgage rates expected to fall further
Fixed mortgage rates may fall further following better-than-expected inflation data as brokers hailed a “light at the end of the tunnel” for homeowners.
Inflation dropped from 6.8pc to 6.7pc last month, fuelled by a decline in food prices, according to the Office for National Statistics.
The Bank of England’s forecast had previously predicted that the consumer price index would rise to 7.1pc.
Markets have now reduced their bets on Threadneedle Street raising interest rates from 5.25pc to 5.5pc on Thursday but still put the chances of a hike at 54pc earlier this morning.
Even if rates do go up this week, traders still expect them to come down swiftly.
Interest rates had previously been forecast to stay at 5.5pc into August 2024, but markets this morning have been betting on rates of 5pc or 5.25pc instead.
The cheapest fixed rate mortgage has already fallen below 4pc for the first time in months after a rate of 3.9pc was launched by the State Bank of India overnight. The deal comes with a 5pc fee but it is the only one below 4.5pc on the market.
Riz Malik, director of broker R3 Mortgages, hailed the “good news” for mortgage borrowers, particularly those looking to remortgage in the coming months.
He said: “Even with a 25 basis point increase tomorrow, we’re still expecting mortgage rates to continue their downward trajectory in the coming months.”
Mr Malik said this was because fixed mortgage rates are based on longer-term market expectations for interest rates.
Tracker mortgages are based on the current Bank Rate and are still, on balance, forecast to increase by 0.25 percentage points tomorrow.
David Hollingworth, of broker L&C Mortgages, said: “This will be some light at the end of the tunnel potentially for borrowers who have been feeling the impact of very rapid rate rises.”
He said he expected borrowers to continue choosing two-year fixed rates over five-year to avoid being tied into a high fixed rate.
Mr Hollingworth said tracker rates will become more popular as some homeowners decide to wait for fixed rates to drop.
The average two-year fixed mortgage rate is at 6.66pc, while five-year fixes are at 6.09pc, according to the analyst Moneyfacts.
Ben Thompson, of broker platform Mortgage Advice Bureau, said: “Another fall in inflation will fill the nation’s mortgage holders with hope that the tide has well and truly turned.
“Significant month-on-month falls ramp up the likelihood that the Bank of England will hold off on increasing rates right now. This will likely be a breath of fresh air for those on variable rates or trackers, especially if this means that interest rates are near, or at, their peak.
“There is better news for those looking to remortgage and, indeed, prospective buyers. This is due to the steady decline of swap rates, meaning many lenders have reduced rates on various deals.”
He added: “Although swap rates remain high in comparison to the past decade, they are some of the lowest rates we’ve seen in the past year.
“For anyone looking to remortgage or get their first mortgage, speaking to an adviser is vital, as they will ensure you are on the right deal for your financial circumstances.”
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