Sharp Inflation Drop Unlikely to Immediately Impact Interest Rates


Inflation sees a big drop – but the impact on interest rates is unlikely to be immediate

A significant fall in inflation in October means rates are now the lowest they have been in two years. The drop to 4.6 per cent in October, down from 6.7 per cent the month before, is largely due to lower energy prices. It led to jubilation in government, with Prime Minister Rishi Sunak hailing success in his start-of-the-year pledge to bring the rate down by half. However, despite this drop, inflation remains more than double the Bank of England’s target rate of 2 per cent and Andrew Bailey, the Bank’s governor, has warned lowering it further will remain “hard work”.

He has also warned that the base rate will not be cut in the “foreseeable future,” meaning homeowners and those looking to take on a mortgage are stuck with a 15-year high for now. However, there is still positive news to report, as fixed mortgage rates continue to track down due to decreasing SWAP rates which indicate that market expectations are that rates will fall steadily over the relative short and medium terms.

What does this mean for mortgages?

At this time of year, lenders tend to make only minor tweaks to their product ranges with a view to making more aggressive cuts in the early weeks of the new year. It would therefore be no surprise to see more significant falls across the board from early January. As a result, our advice on the best course of action is to lock in a rate now, which can be kept under review throughout the application process. Specifically, opting for a tracker rate now with the hope of moving to a fixed rate next year is our top advice to clients.

Tracking trends

In terms of market trends, we are seeing pricing competition between lenders hotting up considerably, as everyone tries to end the year on a high. This is good news for those seeking mortgages, as it means more and more lenders are steadily dropping rates, and we expect this to continue. We are also seeing more clients opting for bridging loans to buy a new property when their current home does not sell quickly enough. The loan is then paid off when the sale goes through.

In the commercial market, the prevalent trend remains clients using limited companies to acquire personally owned buy-to-let properties. We have also seen a spike of enquiries from companies looking to purchase premises for their business to work from instead of renting, with the aim of increasing their asset bases.

As always, the Henry Dannell team is here to provide expert advice and guidance which will enable you to make informed decisions. Get in touch with us to find out more about our offering and how we can help you achieve your mortgage goals.

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Please note: a mortgage is secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.