Fixed Mortgage Rates May Fall Further Amid Better-Than-Expected Inflation Data

Strategic Insights -

Fixed mortgage rates may have finally started to fall, thanks to a surprise drop in inflation that has sparked hopes of a longer period of lower rates for homeowners. According to the Office for National Statistics, inflation fell to 6.7pc in March, down from 6.8pc in February, driven by a decline in food prices. This news has led to a reduction in market bets on the Bank of England raising interest rates from 5.25pc to 5.5pc, with the chances of a hike now at 54pc. Even if rates do rise this week, traders expect them to come down swiftly.

Key Takeaways:

  • The Office for National Statistics reported a 0.1pc drop in inflation from 6.8pc to 6.7pc in March, driven by a decline in food prices.
  • The Bank of England's forecast had predicted that the consumer price index would rise to 7.1pc.
  • Markets have reduced their bets on Threadneedle Street raising interest rates from 5.25pc to 5.5pc on Thursday, but still put the chances of a hike at 54pc.
  • Interest rates had previously been forecast to stay at 5.5pc into August 2024, but markets now bet on rates of 5pc or 5.25pc instead.
  • The cheapest fixed rate mortgage has fallen below 4pc for the first time in months, with a rate of 3.9pc launched by the State Bank of India overnight, coming with a 5pc fee.
  • Riz Malik, director of broker R3 Mortgages, expects mortgage rates to continue their downward trajectory in the coming months, even with a 25 basis point increase tomorrow.
  • David Hollingworth, of broker L&C Mortgages, said that the drop in inflation will be a "light at the end of the tunnel" potentially for borrowers who have been feeling the impact of very rapid rate rises.
  • The average two-year fixed mortgage rate is at 6.66pc, while five-year fixes are at 6.09pc, according to the analyst Moneyfacts.
  • Ben Thompson, of broker platform Mortgage Advice Bureau, believes that the steady decline of swap rates will lead to many lenders reducing rates on various deals, benefiting those looking to remortgage or get their first mortgage.

Statistics:

  • 0.1pc: The drop in inflation from 6.8pc to 6.7pc in March (Office for National Statistics).
  • 54pc: The chances of a hike in interest rates from 5.25pc to 5.5pc on Thursday (market bets).
  • 5.25pc: The current interest rate (Bank of England).
  • 5pc: The fee for the cheapest fixed rate mortgage of 3.9pc launched by the State Bank of India.
  • 6.66pc: The average two-year fixed mortgage rate (Moneyfacts).
  • 6.09pc: The average five-year fixed mortgage rate (Moneyfacts).
  • 25 basis points: The expected increase in interest rates tomorrow (markets).
  • 3.9pc: The cheapest fixed rate mortgage rate launched by the State Bank of India.

Sources:

  • Office for National Statistics
  • Bank of England
  • R3 Mortgages (Riz Malik)
  • L&C Mortgages (David Hollingworth)
  • Mortgage Advice Bureau (Ben Thompson)
  • Moneyfacts