UK Mortgage Rates Cut Anticipated Due to Positive Inflation Data

Brokers and housing market analysts predict mortgage rates to fall slightly in the coming weeks. This is due to positive inflation data and an optimistic outlook from the Bank of England.

For Simon Gammon, managing partner at mortgage broker Knight Frank Finance, the combination of lower-than-expected inflation figures and the Bank of England’s decision to keep interest rates on hold “has added stability” to the mortgage market, amid positive comments from the Bank.

One major lender [NatWest] dropped its rates [on Wednesday] and we’d expect to see more of that during the coming fortnight. Any cuts will be marginal, but it looks increasingly like borrowers won’t have to wait long before mortgage rates begin falling more meaningfully,

The Rising Mortgage Rates Trend

Since mid-February, mortgage rates have risen as swap rates, which lenders use to price their loans, have slowly increased. However, last week saw a fall in swap rates, which continued after the Bank of England’s decision.

According to Ray Boulger, Senior Technical Manager at broker John Charcol: “The recent shift in gilt yields and swap rates will give lenders room to cut rates. We may see a decrease in rates soon.”

Similarly, Lucian Cook, residential research director at estate agent Savills, confirmed that the risk to lenders of the Bank of England taking longer than expected to cut base rates had diminished this week. This translates to more stability in the mortgage market and the possibility of rate decreases. This will inject some buying power into the housing market, aiding its continued recovery.

No Major Changes in Affordability Barriers

While positive, Cook warned that the mortgage outlook would not significantly alter the current affordability barriers facing borrowers. This is due to the fact that affordability is assessed using rates tied to the Bank of England base rate, which has yet to fall. Cook stated, ‘This does not drastically alter the situation. It provides those who can access mortgage financing with a bit more confidence to do so.’

To expand our buyer range more significantly, we’ll need to see the first base rate cut and then a more significant improvement in mortgage rates,

Current Mortgage Deals

For buyers with substantial equity who are borrowing no more than 60% of the property’s value, Barclays offers a two-year fix at 4.53%. Nationwide offers a five-year fixed rate mortgage at 4.19%.

The first indication that borrowers are responding to these changes is likely to be seen in mortgage approval figures. Mortgage approvals have been trending upwards, with 55,000 approvals in January, a significant increase from 44,000 in September 2023.

In addition, there has been an increase in house prices, with Nationwide’s index for February showing a year-on-year rise of 1.2%. Brokers reported an expectation of a Bank of England rate cut this year is encouraging borrowers to opt for short-term loans in order to refinance at lower rates later this year or next.