As inflation is coming down, mortgage rates are too

Following a decline in inflation, HSBC has become the first high-street mortgage lender to lower its mortgage rates. The bank said that it is lowering rates for new customers and those remortgaging with at least 10% deposits or equity. The new rates will go into effect on Wednesday, July 26.

Accord Mortgages have also decreased new client rates by up to 0.4%. The lender also increased its reward incentives on remortgage offers in a statement to brokers.

In addition, Pepper Money, a specialist lender, is offering discounts of up to 0.95% on its ‘limited edition’ products.

Mortgage borrowers are bound to be satisfied with the news since the market has responded to the heightened possibility of more Bank of England base rate rises with weeks of strong rate increases.

In May, inflation remained strong, leading swap rates, the primary mechanism for mortgage pricing, to climb. Markets, on the other hand, reacted positively to the news last week that both CPI and core UK inflation decreased in June.

The Consumer Price Inflation index fell to 7.9% in June from 8.7% in May, exceeding the market forecast of 8.2%.

Swap rates, which reflect where financial markets believe mortgage rates will be in two and five years, are projected to decline further; however, it is unclear whether more lenders will choose to pass on the drop.

The market continues to expect the Bank of England to raise its base rate from 5% to about 6% by the end of the year, implying that more suffering for borrowers is on the way.

In fact, despite the inflation announcement, Natwest raised its rates on the same day, reflecting the current state of the mortgage market.

According to Moneyfacts, the average rate for a two-year fixed agreement is currently 6.83%. Since last week, the average has moved both up and down.

The average APR for five-year loans is currently 6.34%.

‘We are starting to see lenders now cutting their fixed rate products, with HSBC perhaps the first of many over the next several weeks,’ said Nicholas Mendes, mortgage technical manager at broker John Charcol.

‘Lenders will pace decreases over the next few weeks to avoid becoming market leaders too rapidly, which may result in an inflow of applications and dampen their service standards.’

Should you wait for rates to fall before fixing?

The temptation for the 1.3 million mortgage holders who will be leaving their fixed terms in the next year, the bulk of whom are currently under 2%, may be to wait for rates to fall further.

However, with most expecting the Bank of England to raise its base rate to maintain inflation containment, it is not a sure bet.

‘One thing we can be confident of is that nothing can be taken for granted,’ Mendes continues.

‘It is still advisable to obtain a deal in advance and to review it with your broker on a frequent basis to ensure you allow plenty of time to switch to a better rate before the deal is due to finish in the event prices fall further.’

Most lenders will let you select a new rate up to six months before your current mortgage deal expires. This means that if interest rates climb higher over that time period, you are protected, but if they fall, you can lock in another offer before your fix ends.

Kylie-Ann Gatecliffe, director at mortgage broker KAG Financial said: ‘To finally have some positive news is great for borrowers. As we have seen other lenders reduce their rates over the past week, now that the high street lenders are involved I do believe we will see more of this.

‘They may not fall rapidly, as this could also shake the market, but a reduction at a time when people are worried about mortgage payments is a step in the right direction’.

 

Nigel-Dolphin-Dolphin-Financial-Limited

Heather Dolphin

Independent Mortgage, Protection, and Equity Release Adviser

Tel – 01928 761001

Email – heather@dolphinfinancialltd.co.uk