Inflation rose to a higher-than-expected 3% in the 12 months to January, up from 2.5% the previous month, reducing the chance of further base rate cuts for now.
The Consumer Prices Index (CPI) measure of inflation was pushed higher by steeper airfares, food and drink costs and the removal of the VAT exemption on private school fees, the Office for National Statistics said.
Here, we explain what the latest inflation announcement means for mortgage rates, and why you shouldn’t delay if you spot a deal you like.
Swap rates increase
Swap rates are the rates that lenders must pay other financial institutions to acquire fixed funding for a set term, and therefore play a significant role in determining fixed mortgage rates. They have edged up again slightly in response to January’s inflation data.
As a result, some lenders such as Santander and Co-Operative Bank have withdrawn rates already. It’s not all bad news however, as other lenders including Nationwide and Halifax have announced cuts to their mortgage range.
David Hollingworth, associate director at L&C Mortgages, said: “Although the hopes for another early base rate cut may ebb away, borrowers should still look forward to interest rates continuing to drop. The increase in the rate of inflation will simply raise the same uncertainty and questions around the timing of the next cut and how many more there could be to come this year.”
Start the mortgage ball rolling early
If your mortgage deal is coming to an end soon it makes sense to take advantage of competitive rates while they are still available. If inflation remains high it could mean interest rates will be higher for longer, which could negatively impact fixed mortgage rates.
You can usually secure your next mortgage deal between three and six months before you need it to begin, which means if rates do rise, you’ll have peace of mind that you’ve got the rate you wanted. If, however, mortgage rates come down before your next deal starts, you can then review things again and switch to a cheaper deal if there is one.
