Mortgage interest rates are unlikely to drop any time soon as inflation remains stubborn, brokers have warned. The Consumer Price Index (CPI) rose by 3.8% in the 12 months to August, unchanged from July, according to new data from the Office of National Statistics.
While the country’s rate of inflation hasn’t accelerated, it still remains nearly double the Bank of England’s 2% target. The Bank reviews the Base Rate, which influences mortgage rates, loans, and savings rates, to help temper inflation. The Bank typically raises or holds interest rates when inflation is high to curb spending and slow price increases, and lowers them when inflation drops. Analysts expect the Base Rate to be held at 4% tomorrow (September 18), when the Bank next meets to review it. As a result, brokers expect lenders to « remain cautious » with their deals for now.
Craig Fish, director at London-based Lodestone Mortgages, said: « Don’t be lulled into thinking today’s inflation figure means the cost-of-living crisis is easing. CPI may have held steady at 3.8%, but everyday life still feels more expensive for most households.
« Borrowers shouldn’t expect an immediate fall in mortgage rates, as lenders will remain cautious until they see consistent evidence of inflation cooling. As for the property market, demand is likely to stay resilient due to a shortage of homes for sale, but higher borrowing costs will continue to act as a handbrake on activity. »
Babek Ismayil, CEO at homebuying platform OneDome, agreed that mortgage holders are unlikely to see rates drop but equally, added they may not rise too much further.
He said: « Lenders have been slowly increasing rates over the past month or so, in part due to stubborn inflation. Inflation staying at 3.8% is unlikely to see rates come down but equally it may avert further material increases for now.
« Inflation is still almost twice the Bank of England target and until it starts edging down, the Bank of England’s hands may be tied. »
Emma Jones, managing director at Runcorn-based Whenthebanksaysno.co.uk, said: « Though inflation has held at 3.8%, borrowers should not expect rates to come down for the time being. There is a lot of caution among lenders at present, with the economy flatlining and the Government in crisis.
« Tomorrow’s Bank of England rate decision could give us more insight into where mortgage rates are likely to go next. »
Justin Moy, managing director at Chelmsford-based EHF Mortgages, also warned borrowers not to raise their hopes. He said: « This is a little better than predicted, but it’s still a long way off the imposed Bank of England target of 2%. Mortgage rates have increased a little in September for those looking for a new fixed-rate deal, so we shouldn’t expect any significant changes in the coming weeks unless other pressures within the economy override this.
« Borrowers shouldn’t expect any major rate cutting for some time yet. »
The Bank of England’s Monetary Policy Committee will announce the next Base Rate decision on Thursday, September 17 at 12pm.
