Fixed mortgage rates are expected to fall in the coming weeks following a lower-than-expected inflation figure and the result of the Bank of England interest rate vote, experts have said.
Inflation fell to 3.4 per cent in the year to February – a little lower than economists had predicted – and this has increased bets from traders on an interest rate cut in June, rather than August.
On Thursday, no members of the Bank of England’s Monetary Policy Committee (MPC) voted to increase interest rates for the first time since 2021.
Mortgage brokers have said that the two things could lead to some falls in fixed rates in the weeks ahead, after several weeks of increases.
Some brokers have said a return to rates of under 4 per cent for those with large deposits or equity are possible, but they have also warned borrowers “not to expect overnight success”.
Fixed rate mortgage pricing is based on swap rates, which tend to follow long-term predictions for where the Bank’s base rate will go.
Good news on inflation this Wednesday, as well as the fact that two of the nine-member MPC switched their votes from backing an interest rate increase at February’s meeting to backing a hold at Thursday’s one, means money markets are putting the chance of an interest rate cut by the Bank in June at more likely than not.
Brokers have said this will feed into fixed rate mortgage pricing.
Nick Mendes of John Charcol brokers said: “Markets have reacted positively following yesterday’s inflation data, with NatWest quick to reprice downward on their five-year fixed products.
“I expect similar moves by other lenders over the next fortnight as confidence slowly filters back into the market. This won’t be an overnight success unfortunately, but there is no reason why we shouldn’t expect to see a five-year fixed rate under 4 per cent based on current pricing in the not-too-distant future.”
Andrew Montlake, managing director at Coreco, another mortgage broker, added: “Whilst the outcome of the latest MPC meeting was predictable, there is some comfort in that at least there was no member of the committee voting for a rise this month.
“We should hopefully see some downward movement in swap rates now, which will help give mortgage lenders the room to return to a more competitive mortgage rate environment.”
David Hollingworth of L&C Mortgages said rates are unlikely to be slashed overnight but will come down eventually.
“The fact that we’ve seen the two members that have previously voted for a rise fall into line and vote for a hold will no doubt see markets feel as though we’re edging closer to the point where anticipated cuts will begin.
“If we see those drops to swaps persist and hold firm then it should open up the opportunity for rates to be cut. I think lenders may not slash rates overnight and it could take a little time but five-year fix rates were around the 3.7 per cent mark in January.
“Rates have bobbled up and down so you can’t be certain what will happen, but lenders are trying to price as sharply as they can. So sub-4 per cent rates are on the cards. Next week is probably too early for that, but I think lenders will respond if swaps stay down.”
Mortgage rates fell at the start of the year, with deals below 4 per cent being available to those with high deposits or equity.
But since then, expectations for when the Bank will cut interest rates have been pushed back and several lenders have upped their rates.
Currently, the best five-year fixed rates across the whole of the UK is 4.18 per cent from NatWest, according to Moneyfacts.
The sorts of decreases that brokers are predicting will not take rates back to anywhere near those available during the Covid pandemic or the decade before, but it may mean a return to the kind of deals that were on offer early in 2024.
