The Consumer Prices Index (CPI) measure of inflation remained at 2.8% in the 12 months to May, according to the Office for National Statistics, defying expectations that it would rise.
Steeper fuel costs due to the Middle East conflict had been expected to push inflation higher, but these were offset by easing food prices, causing it to hold steady. When inflation is rising, this typically leads to higher interest rates, as central banks raise rates to slow price increases. In turn, mortgage rates usually rise too, making borrowing more expensive.
Following May’s inflation figures, the Bank of England’s Monetary Policy Committee voted 7-2 to leave the base rate unchanged at 3.75% in June, which should hopefully mean more stability for the mortgage market.
“Markets have priced in potential interest rate rises since the conflict began, which forced mortgage rates higher,” said Mr Hollingworth. “However, since then fixed mortgage rates have eased back. Despite the uncertainty that remains, we should see further, gentle cuts feed through. Although it’s unlikely that rates will plummet, it does at least give mortgage borrowers a more positive outlook than only a few weeks ago.”
Our remortgage tracker shows that the average of the lowest 2 and 5 year fixed rates from the top ten lenders dropped from 5.02% and 4.99% respectively at the beginning of April to 4.72% and 4.75% at the beginning of June.
Several lenders, including Nationwide and Yorkshire Building Society, have trimmed rates in recent days, so if you spot a good mortgage deal, it may be worth securing it sooner rather than later, especially as the future remains uncertain. July’s higher energy bills have yet to feed through to households, which means inflation could rise again in coming months.
“Getting the best deal now and then keeping close tabs on market movement will protect against any further volatility but still give the chance to capitalise on any improvement by switching to a better deal before completion,” said Mr Hollingworth.
