As inflation falls to 1.7% – below the Bank of England’s 2% target – what does this mean for your mortgage?
UK inflation fell to 1.7% in September, the lowest it’s been since April 2021, according to figures just released by the Office for National Statistics (ONS). It’s a bigger drop than was expected by many economists, who had predicted it to fall to 1.9% – just below the Bank of England’s 2% target.
Lower inflation makes it more likely that interest rates will fall. Economists expect interest rates to be cut from the current 5% to 4.75% in November, and following such a dramatic fall in inflation, there’s the potential for a second cut in December, too.
So, what does this mean for your mortgage?
Impact on tracker and variable mortgages
While mortgages are not directly affected by inflation, many mortgage products are affected by the Bank of England base rate, which is influenced by inflation.
If you’re on a tracker product or a standard variable mortgage, this will change directly when the interest rate goes down, which will likely be a welcome relief.
Impact on fixed rate mortgages
When it comes to fixed-rate mortgages, which tend to work on longer-term base rate predictions, a large drop in inflation has the potential to send mortgage rates down, given that the base rate is likely to fall soon. However, due to uncertainties surrounding the Autumn Budget, which will be delivered on 30 October, we’re unlikely to see an immediate drop in mortgage rates.
It’s worth noting that, while fixed-rate mortgages have been coming down, with all big lenders currently offering a five-year fixed rate mortgage below 4%, in recent weeks providers have been increasing their rates slightly. This has followed an increase in swap rates, which reflect market expectations of the future direction of interest rates.
This means that if you’re nearing the end of a fixed mortgage deal, you might want to consider securing a new one sooner rather than later.
Make an appointment with one of our friendly team today or drop into our Mortgage Shop in Sutton for a friendly chat, to find out what the inflation drop might mean for you and to see if we can help you save money on a new mortgage product.