Falling inflation and growing competition between lenders could bring further mortgage rate cuts in the months ahead, offering some relief for borrowers planning to buy or remortgage.
The Bank of England left interest rates unchanged at 3.75% on Thursday, helped by falling energy prices and lower-than-expected inflation.
The outlook for inflation and mortgage rates improved last week as the US signed a deal with Iran to reopen the Strait of Hormuz. Oil prices fell sharply, reducing pressure on inflation and improving expectations for interest rates. Lenders responded quickly, with Nationwide leading a round of mortgage rate cuts beginning on Tuesday. Its 4.29% two-year fixed-rate mortgage at 60% loan-to-value is now the cheapest on the high street.
AThis is likely to mark the beginning of a market-wide repricing. The lenders have completed less business than they anticipated so far this year and competition will intensify during the second half. If the inflation picture continues to improve, we expect mortgage rates to drift lower through the summer, setting up a busy autumn in the housing market.
Lenders have increasingly focused on product innovation while mortgage rates have remained elevated. Moneyfacts data shows that banks and building societies launched 350 new mortgage products in May, taking the total number available to borrowers to around 7,000 – the highest level since March.
The housing market has proved resilient. Lenders approved 65,900 mortgages in April, up from 64,000 in March and above the six-month average of around 63,100, according to Bank of England data. Meanwhile, UK house prices fell by 0.6% in May, reducing annual growth to 1.7% from 3.0% the previous month, according to Nationwide.
The key takeaway for borrowers is that the direction of travel now appears favourable. Mortgage rates are unlikely to fall dramatically, but improving inflation data and growing competition between lenders should help keep downward pressure on pricing during the months ahead. For households planning to buy or remortgage this year, the market looks considerably more supportive than it did during the spring.
If you’re planning to buy or remortgage, speak to one of our brokers today. We scan more than 200 lenders to find the right deal, can secure a rate quickly and keep your options open if the market improves.