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Inflation drop could pave way for lower mortgage rates – Rightmove

  • 19/06/2024
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Inflation drop could pave way for lower mortgage rates – Rightmove
The inflation rate falling to the Bank of England’s 2% target in May could result in reduced mortgage pricing later this year, Rightmove has speculated.

The figures published today showed that the Consumer Prices Index (CPI) measure of inflation was finally under control and at its lowest level since July 2021. 

The Bank of England’s Monetary Policy Committee (MPC) will publish the minutes of this month’s meeting tomorrow, where it will reveal what the base rate has been set at. 


Waiting for the general election to pass 

The markets have predicted that the central bank would not make any major movements until after the general election and will vote to keep the base rate at 5.25%.

Matt Smith, mortgage expert at Rightmove, said: “Hopefully today’s inflation drop is the first step on the journey towards lower mortgage rates in the second half of the year. 

“Market expectations are still that the first Bank of England rate cut is more likely to be later in the summer rather than tomorrow, but at least today’s news will keep us on course rather than throwing a curveball.” 

Peter Stimson, head of product at MPowered Mortgages, said the Bank of England was unlikely to lower the base rate, “as the inflationary block has morphed into an electoral one”. 

He added: “While the bank is independent of government and not part of the civil service, it too is in de factor purdah – and cannot be seen to influence the election. 

“The members of its rate-setting committee are therefore unlikely to cut the base rate tomorrow, even if they wanted to. 

“Not so long ago, governments set interest rates – and were often accused of abusing this power to win votes at election time. 

“So even though mortgage borrowers and lenders are crying out for the base rate to start coming down now, we are likely to have to wait until after the election – and probably until August – before relief finally comes.” 

Adam Oldfield, chief revenue officer at Phoebus, said flat gross domestic product (GDP) growth after months of increases could also make the MPC hold off from reducing the base rate. 

He said: “After last week’s flatlined ONS figures on April GDP after three months of consecutive growth, I think, like many, that it will be a tough vote at tomorrow’s Monetary Policy Committee meeting on whether to drop the Bank of England interest rate. 

“I suspect as well as the GDP flatlining, the BoE will not want to be seen as a pawn in the general election debate, so I would suggest it will likely be July or perhaps even August before we see a rate reduction.” 


Unwavering mortgage rates 

Average mortgage rates have stayed fairly stable in recent months, with only small fluctuations in pricing. 

The latest Rightmove analysis showed that the average two-year fixed rate was 5.44% as of 19 June, just slightly higher than the average of 5.4% at the start of the month. 

The average five-year fixed rate came to 5.03%, compared to 5.04% on 5 June. 

Compared to a year ago, mortgage rates were lower than the averages of 5.81% and 5.39%. 

As of today, the average two-year fixed mortgage rate for a deal at 60% loan to value (LTV) was 4.88%, while the average five-year fixed mortgage rate was 4.47%. This compared to respective average rates of 4.89% and 4.88% earlier this month. 

At 75% LTV, the average two-year fixed rate rose from 5.28% on 5 June to 5.29% on 19 June, while the average five-year fixed rate moved from 4.92% to 4.89% over the same period. 

The average two-year fixed rate at 85% LTV was 5.43% compared to 5.41% previously, while the average five-year fixed rate was 5.01%, a slight change on 5.02%. 

At 90% LTV, the average two-year fixed rate was 5.68%, up from 5.62% previously. At the same time, the average five-year fixed rate rose marginally from 5.18% to 5.19%. 

The average two-year fixed rate at 95% LTV increased from 6.08% at the start of the month to 6.1%, while the average five-year fixed rate moved from 5.68% to 5.72%. 

Rightmove calculated that the average monthly mortgage payment on a typical first-time buyer home on a five-year fixed deal at 85% LTV would be £1,133 now, compared to £1,167 a year ago.

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