Inflation dropped to 1.7% in the 12 months to September, the first time it has fallen below the Bank of England’s 2% target in more than three years, but what does this mean for your mortgage?
Lower air fares and petrol prices were behind the fall in the Consumer Prices Index measure of inflation, according to the Office for National Statistics (ONS), although food prices rose in the year to September.
When inflation slows, it doesn’t mean that prices are falling, but instead that the rate at which the prices of the goods and services increase is easing. Slowing inflation paves the way for further interest rate reductions, with the latest fall prompting renewed optimism from commentators that we could see rates cut in November and possibly December.
This in turn may result in mortgage rates stabilising, after they ticked up in recent days following mixed messaging as to how quickly interest rates might fall in coming months.
David Hollingworth, associate director at L&C Mortgages said, “The sharper fall in the rate of inflation than had been expected could bring some welcome relief for mortgage borrowers. The market expectation for interest rates has built in another cut this year but has been slightly less optimistic about whether rates will now fall as quickly, as had been forecast over the summer.
“As a result, the recent cycle of cuts to fixed mortgage rates has been juddering to a stop and in some cases going into reverse, as an increasing number of lenders have increased rates. If the better-than-expected inflation figures improve the market outlook for interest rates, it could therefore help to steady mortgage rates.”
However, it’s important to remember that there are no guarantees, and the Bank’s Monetary Policy Committee will review a wide range of other economic data before making its decision. Uncertainty surrounding the Budget on October 30 may also have an impact, as we wait to see which policies affecting the property market will be unveiled by the Chancellor.
This means that if you spot a mortgage deal you like, you may want to grab it while you can. You can usually secure your next mortgage rate up to six months before you need it to start, so if rates move down in the meantime, you’ll have plenty of time to move to a cheaper deal if one becomes available.
