The Bank of England opted to hold the base rate at 5.25% on Thursday, but policymakers are now considering when to make the first cut.
Borrowers received two pieces of good news this week.
Firstly, inflation is now falling quickly. The consumer prices index (CPI) climbed 3.4% in the year to February, according to official figures published on Wednesday. Economists expect inflation to fall below the Bank of England's (BoE) 2% target as soon as April.
Those figures caused an immediate dip in the two and five-year swap rates, which are financial instruments used by the lenders to price mortgages. One major lender cut rates immediately, and we expect more to follow in the coming fortnight.
The second piece of good news came on Thursday, when the BoE opted to hold the base rate at 5.25%. Whether to hold, cut or raise the base rate is decided a via vote by the nine members of the Bank's Monetary Policy Committee (MPC). For the first time since the initial surge in inflation, no members of the MPC voted to raise the base rate, down from two last month. One member voted for a rate cut.
Officials at the BoE remain worried about certain aspects of inflation. Prices are rising in the services sector at an annual rate of more than 6%, for example, but there's now little doubt that the Bank is on course to begin loosening monetary policy in a few months. Investors are divided on whether the first cut will arrive in May or June.
This is good news for borrowers. The brighter outlook will give the lenders some leeway to make rate reductions across their product ranges, though at this stage we expect cuts to be marginal. The banks have been battling for market share, so margins are already thin. We'll need a larger, surprise fall in inflation in either of the next two monthly releases, or for the BoE to begin cutting the base rate, if we are to see more meaningful falls in mortgage rates.
The lenders continue to make regular tweaks to their product ranges, so borrowers can save substantial sums by ensuring they engage with a whole-of-market broker as early as possible. We recommend locking in a rate at the first opportunity - any offers can be renegotiated later, should more attractive deals come available.
If you are thinking about your property plans this year and would like to discuss your borrowing options, please get in touch. We have access to over 200 lenders, and can help find the most suitable and cost-effective mortgage for you.