Anticipating Mortgage Rate Cuts Amidst Falling Inflation

The category: Mortgage Rates

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The UK mortgage market is set for a potential shakeup as inflation today hit a two-year low, dropping to 4.6%. This news follows rate cuts by major lenders HSBC and Halifax, leading mortgage brokers to predict an imminent “all-out rate war.”

The drop in inflation, largely attributed to decreasing energy prices, has also influenced Swap rates, impacting the pricing of fixed-rate mortgages. Brokers believe that lenders will continue to cut rates in the coming weeks, with the possibility of five-year fixed mortgages dropping below 4%.

Andrew Montlake, managing director of Coreco, foresees a competitive environment in the New Year as lenders aim to regain market share lost during the past year. He expects mortgage rates to decrease further in what he describes as an “all-out interest rate war.”

Justin Moy of EHF Mortgages notes that with lower Swap rates and increased confidence in falling inflation, there’s a likelihood of sub-4% five-year deals soon. While recent rate reductions have primarily benefited new homeowners and those with existing mortgages, Moy suggests that those looking to remortgage may also see reduced rates in the near future.

Nicholas Mendes of John Charcol brokers predicts sharp rate reductions before a potential slowdown during the Christmas period. Looking ahead, he expects increased competition from lenders in both rate and criteria early next year.

Fixed-rate mortgages typically follow Swap rates, reflecting market expectations of the future Bank of England base rate. Despite the current base rate at 5.25%, experts do not anticipate a decrease until part-way through the next year.

The recent rate cuts by Nationwide, HSBC, and Halifax have sparked speculation about a potential “mini-price war” among lenders. Nationwide, for instance, now offers a two-year fix below 5%, prompting other lenders to follow suit.

In this dynamic landscape, mortgage broker Ben Tadd of Lucra Mortgages believes that more lenders will likely respond with rate reductions in the coming days to stay competitive.

Meanwhile, amidst these market shifts, mortgage lender Perenna is introducing new mortgages with long-term fixed rates, ranging up to 40 years. While the rates start at 5.75%, higher than some competitors, they remain fixed for the entire mortgage term, providing a unique option for borrowers struggling with affordability. Perenna is also allowing applicants with as little as a 5% deposit to access these long-term fixed-rate mortgages.