Today’s inflation figure is the lowest for three years, it is also just 0.3 percentage points above the Bank of England’s target. This means an interest rate cut looks likely in the coming few months
Inflation fell to 2.3% in the 12 months to April, as it finally edges close to the Bank of England target – but many people are asking if this will affect mortgage costs.
The latest inflation figure is the lowest for nearly three years, it is also just 0.3 percentage points above the Bank of England target, which is set at 2%. This means an interest rate cut looks likely in the coming few months and as a general rule: if interest rates fall, mortgage rates should follow it. Currently, the Bank of England base interest rate is 5.25% and has been sat at this level since August last year.
According to data from the financial comparison website MoneyfactsCompare.co.uk, the average two-year fixed residential mortgage rate is today at 5.93%. While this is a significant drop from the July 2023 peak of 6.86%, it’s still much higher than December 2021 when was 2.34%. Currently, the average five-year fix is 5.50%, the average two-year tracker mortgage rate is 5.94% and the average standard variable rate (SVR) mortgage is 8.18%.
Economists believe that the first base rate cut will come in August – rather than June as initially believed. But what does that mean for mortgages? Will they be coming down anytime soon? The most popular type of mortgage is a fixed rate. These don’t track the movement of the base rate, but new deals that are released are based on future expectations.
As a base rate cut is expected this summer, financial experts say we could see cheaper deals come to the market over the coming few weeks. Ben Todd of Lucra Mortgages said today’s confirmation could push deals downwards as an inflation drop to around 2% “could trigger the start of a new mini-rate war between lenders”.
However, James Hyde, a spokesperson at Moneyfactscompare.co.uk, warned that despite a few prominent lenders cutting rates recently – including HSBC, Barclays and TSB – there have been movements in the opposite direction too. He added: “In fact, average mortgage rates remain around the highest they’ve been in 2024. Swap rates also heavily influence mortgage pricing, and it remains to be seen how this market will fluctuate following today’s announcement.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, noted that “some momentum” had emerged over the past couple of weeks with a number of big lenders reducing their fixed-rate mortgages on the back of the decline in Swap rates. He added: “Five-year Swap rates rose this morning to 4.11 per cent from 4.01 per cent yesterday largely because the markets have pushed back expectations of a rate cut so we will see whether this trend continues in the short term and what impact that has on mortgage rates.”
Tracker mortgages are directly tied to the Bank’s base rate and will rise and fall alongside it. This means these mortgage deals will not get any cheaper until the Bank confirms a cut, as mentioned before will likely come in August this year. An SVR deal also follows the Bank’s base rate, however, the rate is decided by the lender, so if the rate does get cut it’s likely to come after the Bank announces its decision.
