Inflation unexpectedly jumped to 3.6% last month. What does this mean for future mortgage rates?
Inflation rose more sharply than expected in June, climbing to 3.6%, up from 3.4% in May, according to the Office for National Statistics (ONS). The unexpected rise was largely driven by higher motor fuel, air, and rail fares, as well as food prices, with food inflation increasing for the third consecutive month. Inflation is now at the highest level in almost 18 months and is currently much higher than the Bank of England’s target rate of 2%.
August base rate review
This latest inflation data comes at a sensitive time, as all eyes are on the Bank of England ahead of its next base rate review on 7 August. While many still anticipate an interest rate cut later in the year, the latest inflation figures could prompt the Bank to hold fire. Economists are mixed about whether there will be a rate cut – some predict the Bank will go ahead and cut the base rate anyway, while others believe the bank could be more cautious. The base rate currently stands at 4.25%. The rate remained unchanged in the last review on 19 June but was reduced from 4.5% in the previous review on 8 May.
Lenders are reducing their rates
Despite the uncertainty, lenders have already begun lowering their mortgage rates in recent weeks, sparking a rate-cutting battle across the market.
Santander announced rate reductions on 16 July for first-time buyers, home movers, new build, remortgages and buy-to-let mortgages. The lender’s two-year fixed rate deals for first-time buyers now start at 3.84%.
Halifax has cut fixed-rate deals for first-time buyers and home movers, while Barclays announced reduced rates on 17 July for purchase and remortgage deals, with its lowest rate now at 3.75% for premier customers. Accord has also cut selected fixed-rate deals for buy-to-let borrowers.
If you’re thinking about securing a mortgage or switching your current deal, now could be a smart time to explore your options. An experienced broker can help you navigate the changing market and find a mortgage deal that suits your needs.