Are falling mortgage rates a sign of things to come?

Catherine Alexander
Partner

We have seen a number of major lenders reducing rates on selected fixed rate mortgage deals in the past week, these include Nationwide, TSB, HSBC, and Barclays. It is predicted that other banks and building societies will do the same this week, meaning that we will see fixed rates falling back below 6%. This may also help to re-introduce some life into the mortgage market.

Economists are predicting that the Monetary Policy Committee (MPC) will vote to raise the base rate again, despite a larger than expected fall in core inflation from 8.7% in May to 7.9% in June according to the Office for National Statistics (ONS). The ONS have said that ‘falling prices for motor fuel led to the largest downward contribution to the monthly change in CPIH and CPI annual rates, while food prices rose in June 2023 but by less than in June 2022, also leading to an easing in the rates’.

The MPC will continue to monitor inflationary pressures in the economy in line with its remit to return inflation to 2%. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required and they may decide to be agressive in the use of rate rises. However, with the larger than expected reduction in inflation, the MPC may also consider that while an increase is still warranted, a less severe increase of 0.25% may be sufficient, rather than the expected 0.5%. The next MPC meeting is due to be held on the 3rd August 2023.

In terms of the effect of a base rate increase on mortgage fixed rates, it is unlikely that this will reverse the trend of falling fixed rates being offered, as banks and building societies would have already factored this rate rise in.

The mortgage market remains volatile, but the signs are pointing to us coming to the end of the base rate rises, and the start of better market conditions for mortgages to come.

References:
Bank of England Website: https://www.bankofengland.co.uk/

This article isn’t personal advice. If you’re not sure whether a course of action is right for you, ask for financial advice. Your home may be repossessed if you do not keep up repayments on your mortgage.