A sharper-than-expected drop in UK inflation could offer relief to mortgage borrowers, according to David Hollingworth, associate director at L&C Mortgages.
Inflation fell to 1.7% in the year to September, marking its lowest point in three and a half years and dipping below the Bank of England’s 2% target. This unexpected drop could pave the way for further interest rate cuts.
Hollingworth noted that the decline may help stabilise mortgage rates, stating: “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.”
He explained that the recent cycle of fixed mortgage rate cuts has been slowing down, with some lenders reversing course and raising rates. “If the better-than-expected inflation figures improve the market outlook for interest rates, it could therefore help to steady mortgage rates,” Hollingworth added.
Looking ahead, he said: “It’s widely anticipated that we will see the second cut to base rate come in November, so that is already factored into mortgage rates. We’ll therefore have to see if today’s positive figures can build greater confidence in further cuts coming sooner, but the upcoming Budget may leave some ongoing uncertainty to contend with.”
