The fall in inflation is good news for households because it means that incomes may be less than before.
The Consumer Price Index (CPI) fell sharply to 4.6 percent this month – the lowest level in two years – with the slowdown coming after a sharp rise in energy prices last year.
However, the reduction in the prime rate does not mean that prices are falling, but that they are rising so quickly compared to previous months.
However, some families are already taking the comfort of catastrophic wage increases, as average wage growth is now outpacing inflation, so a recession could be a “double whammy”. price increases.
Fixed-rate mortgages are nearing four per cent by the end of the year as lower-than-expected inflation figures fuel optimism for homeowners.
Alice Haine, Personal Finance Analyst at Bestinvest, explained that the Bank of England could keep interest rates at 5.25 per cent for now and eventually cut them to “soften the blow” from high mortgage rates, following the fall in inflation.
Mortgage brokers said the fall was a “relief” for mortgage borrowers, increasing the likelihood of a pre-Christmas price war among lenders.
Ashley Thomas, a director with a broker based in London, Financial Magni, proposed rates could even start to triple before the end of 2023: “Lenders are getting more aggressive with rate cuts. I wouldn’t be surprised to see rates drop below four percent by the end of the year.
“The next inflation data will be critical for mortgage lenders, and expect many rate cuts if inflation falls significantly.”
HSBC now offers a five-year fixed rate of 4.59 per cent to buyers with a deposit or 40 per cent equity in their home. Across the country, NatWest and TSB cut their mortgage rates last week, amid promises that interest rates will start to fall from the current level of 5.25 per cent next year.
Nationwide was the first major high street lender to offer a two-year fixed rate below five per cent. The 4.99 per cent rate is available to those buying on a loan-to-value ratio of 60 per cent.
Ranald Mitchell, director at Charwin Private Clients, said: “This significant fall in inflation will be a huge relief for everyone and we should expect further mortgage rate cuts in the coming days.
“Mortgage lenders were already at war with each other on pricing and these inflationary figures will only encourage them to go even further, and faster. The property market looks set to rebound in 2024.”
Inflation falling so sharply will be a boost for mortgage borrowers and the wider property market.
With inflation falling to 4.6 per cent, the Chancellor has a “golden opportunity” to revive the UK housing market in his September Statement and not just squander it by cutting stamp duty.
Major lenders such as HSBC and Halifax are cutting rates again this week and the base rate is likely to be on hold.
Rohit Kohli, Director at The Mortgage Stop, continued: “For homeowners, who have yet to remortgage, this relief will be welcome and give some hope to their dwindling budgets.
“For those who have switched to a tracker, it’s worth starting to speak to your mortgage adviser to see if there are opportunities to save money from the peaks seen over the summer.”
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