Inflation falling more than expected today is the “best news” for mortgage holders for some time, according to experts.
The headline rate fell from 4.6 per cent in October to 3.9 per cent in November, sparking good news for homeowners who could see mortgage rates drop even further in the coming weeks as a result, as pressure mounts on the Bank of England to cut interest rates.
Swap rates, a measure that indicates what the market thinks interest rates will be in future, have fallen by 0.2 points on both two and five-year fixed-rates in the past few hours alone.
Andrew Montlake of brokers Coreco said: “We have already seen a reaction as swap rates have reduced even further, which in turn will allow mortgage lenders to continue to reduce their product offerings as the January mortgage sales look set to become even more intense.
“This could well turn out to be some of the best news for mortgage holders for some time.”
Lenders have been cutting mortgage rates for the past few weeks as they fight to find new customers amid affordability issues.
Earlier this week, Barclays announced fixed-rate cuts of up to 0.43 percentage points. The cheapest rate it offers is now a five-year at 4.32 per cent, although it does come with a £1,999 product fee.
Halifax is also offering a five-year fix at 4.28 per cent as of this week, down from 4.27 per cent.
Now it is likely more providers will cut their rates further as lower inflation rates puts pressure on the Bank to cut the base rate which was held this month at 5.25 per cent for the third time.
Montlake added: “It heaps further pressure on the Bank to cut the base rate sooner rather than later as they are in danger of looking out of touch with what is happening in the real world, especially those that voted for another rise only a few days ago.”
Some experts are now predicting there will be more deals near to 4 per cent or even below by early next year.
David Hollingworth, Associate Director at L&C Mortgages, said: “Competition between lenders remains strong in a housing market with lower activity levels.
“As market expectation of the chance for the next move in base rate to be down has grown, lenders have passed through improvements in funding costs.
“Today’s news is likely to further that trend, which could soon see five-year fixed-rates soon closing in on the four per cent marker.”
Justin Moy of EHF Mortgage Brokers added: “We expect to see sub-4 per cent deals imminently. Lenders will look to reprice over the coming days ready for that jump start – a realistic ‘January Sale’ is already under way.”
However, mortgage rates are still much above the previous lows of one per cent seen just a couple of years ago – and inflation is still nearly double the Bank’s target of two per cent.
Hollingworth added: “Although these rates are still way higher than the lows of recent years when both two and five year rates were at one point available around one per cent, it will at least feel a little more manageable than the peaks we saw during the volatility of the summer.
“But the Bank of England has warned that it won’t loosen policy and cut rates until inflation is back on track and there’s still some way to go for that to happen.”