Sub-4% mortgages back ‘on the cards’ after inflation drop and interest rate vote

Professionals have said that fixed mortgage rates will decrease in the upcoming weeks due to an inflation figure that was lower than predicted and the outcome of the Bank of England's interest rate decision.

During the year ending in February, inflation dropped to 3.4%, which is slightly lower than what experts had anticipated. As a result of this news, traders are more inclined to bet on a decrease in interest rates in June, rather than waiting until August.

Last Thursday, the Monetary Policy Committee (MPC) of the Bank of England decided not to increase interest rates. This marks the first time since 2021 that there were no votes in favor of a rate hike.

Mortgage mediators have expressed that there are two potential factors that may result in decreased fixed interest levels in the upcoming weeks. This follows a number of consecutive weeks where rates have been rising.

Several brokers have suggested that people with sizable deposits or equity could see rates drop to less than 4%. Nevertheless, they've cautioned that it won't happen quickly, so borrowers shouldn't anticipate immediate progress.

The cost of a fixed rate mortgage is determined using swap rates that generally align with forecasts for the Bank's base rate over the long term.

There is some positive information regarding inflation that was announced on Wednesday. Additionally, a couple of members in the nine-member Monetary Policy Committee altered their stance on interest rate increases between February and Thursday's meetings. As a result, money markets believe there's a greater chance that the Bank will reduce interest rates in June than not.

According to brokers, this is set to impact the pricing of fixed rate mortgages.

According to broker Nick Mendes from John Charcol, the market responded favorably to the recent inflation figures, and as a result, NatWest quickly adjusted their pricing downwards on their five-year fixed products.

I anticipate that other financial institutions will make comparable adjustments within the next two weeks as trust gradually makes its way back into the market. Although it won't happen instantaneously, there's no reason to not anticipate a fixed interest rate for five years that's lower than 4%, taking into account the existing rates.

The director of Coreco, Andrew Montlake, who is also a mortgage broker, stated that the result of the latest MPC meeting was expected. However, he found some relief in the fact that none of the committee members voted for a rise this month.

It is anticipated that there will be a decrease in swap rates. This will enable mortgage lenders to offer more competitive mortgage rates.

According to David Hollingworth from L&C Mortgages, there won't be an immediate reduction in rates, but they will decrease eventually.

It seems like the markets are getting closer to the point where expected cuts will start since even the two members who used to support a raise have now voted for a hold.

If the drops in swaps continue and remain stable, it could lead to a chance to reduce rates. The lenders might not decrease the rates immediately and it may take some time. However, the rates of five-year fix were at around 3.7% during the month of January.

The rates have been fluctuating recently, making it difficult to predict their future. However, lenders are attempting to offer competitive pricing and may soon offer rates below 4 per cent. It may not happen next week, but if the current swaps trend continues, lenders may adjust their rates accordingly.

At the beginning of the year, the interest rates for mortgage loans decreased, and individuals who have significant deposits or equity can now obtain deals that are less than 4%.

However, after that point in time, the predictions of when the Bank would decrease interest rates have been postponed, and some lending companies have increased their interest rates.

At the moment, Moneyfacts reports that NatWest is offering the top five-year fixed rates in the entirety of the United Kingdom, sitting at 4.18%.

The types of reductions that traders are forecasting won't bring interest rates anywhere close to what was available during the Covid outbreak or the previous decade, but it could entail a comeback of the types of bargains that were available in early 2024.