The trend of lenders cutting mortgage rates is unlikely to be ‘disturbed’ by the first inflation rise of the year, according to experts.
Inflation rose to 2.2 per cent in the 12 months to July, up from 2 per cent the previous month, ONS figures revealed earlier today.
While it means inflation is back above the Bank of England’s 2 per cent target, it was a smaller-than-expected rise with markets expecting a 2.3 per cent increase.
The Bank of England cut base rate on 1 August, partly thanks to inflation remaining on target at 2 per cent for two consecutive months.
Over recent weeks, mortgage lenders have been slashing rates in expectations that interest rates are now on a downward trajectory.
There are now a number of lenders offering five-year fixed rates below 4 per cent, including Barclays, NatWest, Nationwide and HSBC.
But with inflation ticking up again, this has caused some concern that the Bank of England will delay plans to cut interest rates further.
Ben Perks, managing director at Orchard Financial Advisers told the news agency Newspage: ‘A base rate reduction in September was always unlikely, but now seems totally out the window.
‘It is unnerving to see inflation on the rise again, but an uptick to 2.2 per cent is better than anticipated.’
Meanwhile, Peter Stimson, head of product at lender MPowered Mortgages added: ‘With headline inflation back above target, a base rate cut in September is now likely off the cards.
‘However, there’s still the possibility for a cut before the year is out in what remains a highly fluid market.’
What next for mortgage rates?
The current mortgage rate war has seemed relentless at times. Since the start of July the lowest five-year fixed rate has gone from 4.28 per cent to 3.83 per cent and the lowest two-year fix has fallen from 4.68 per cent to 4.22 per cent.
David Hollingworth, associate director at L&C Mortgages believes mortgage rates are unlikely to be ‘disturbed’ by the uptick in inflation, largely because the uptick was already expected.
‘The direction of travel is unlikely to be disturbed by reaction to today’s news and the market will have been well prepared for an increase,’ said Hollingworth.
‘Instead, we’re likely to see continued and frequent movements in mortgage rates, as lenders continue to adjust and improve where they can.’
Mark Harris, chief executive of mortgage broker SPF Private Clients agrees with Hollingworth.
Contact one of our highly experienced mortgage advisors today on 0121 500 6316 to discuss your mortgage needs.
