Mortgage borrowers have been urged to “shop around” as the latest inflation figures mean rates could soon drop again.
CPI figures for the year to February show inflation fell to 3.8 percent for the year to February, down from 4.2 percent in January.
Claire Exley, head of advice and guidance at wealth manager Nutmeg, told Express.co.uk: “It’s always worth shopping around – expectation is that there will be interest rate cuts this year and some providers are starting to factor this in with the rates they are offering.”
However, she said there may be some disappointment for mortgage borrowers. She explained: “For mortgage holders today’s inflation data may not be good enough news.
“If there had been a more significant reduction in the rate of inflation, there would have been more scope for the Bank of England to consider a cut to interest rates sooner rather than later.
“A reduction to the base rate, would in turn feed through to mortgage rates and potentially provide some relief, particularly for those who will need to remortgage in the coming months.
“That being said, it’s always worth shopping around – expectation is that there will be interest rate cuts this year and some providers are starting to factor this in with the rates they are offering.”
Ms Exley said the Bank of England has faces a difficult decision in when to cut rates. She commented: “The Bank of England’s Monetary Policy Committee is due to meet tomorrow and make a decision on interest rates.
“Before today’s data, expectation was that tomorrow would be too soon for a cut in interest rates – while inflation is on the way down, it is still significantly above the Bank’s target of two percent.
“The Bank of England has a delicate balancing act – move too soon to cut rates and they could risk putting too much money back into the economy, which could in turn cause inflation to tick back up; wait too long and the squeeze on household finances could further stifle economic growth, which is flatlining in the UK.
“Our expectation is that the rate will remain unchanged tomorrow, but that a cut is likely in the late spring or summer.”
Chancellor Jeremy Hunt said the latest drop in inflation “opens the door” for the Bank of England to drop the base rate, which would bring down mortgage rates.
Ben Thompson, deputy CEO at Mortgage Advice Bureau, said that with inflation now just 1.4 percent above the Bank of England’s two percent target, there could soon be better clarity on when the base rate will drop.
He said: “The last month has seen volatility in swap rates, with some lenders increasing their mortgage rates as a consequence.
“However, with inflationary pressures now easing, this could lead to an easing in swap rates and therefore the start of mortgage rates softening again.
“If this happens, it would be perfectly in time for the busy period of year for the housing market, and would also help many thousands of borrowers to re-mortgage to better rates once their current deals have come to an end.
“For those looking to get mortgage ready, now is the time to speak with a broker and start preparing. Homeowners looking to remortgage in the next few months should also get ahead of the curve and start looking at what deals are available.”
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