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Inflation dip – Comment from brokers and IFAs on what this might mean for mortgage rates

by | Jan 18, 2023

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Inflation has dipped for the second month in a row. Will this mean there’s less pressure on the Bank of England to raise the base rate? Mortgage brokers and IFAs were asked what impact the inflation dip might have on mortgage rates.

Jamie Lennox, director at Norwich-based mortgage broker, Dimora Mortgages:

“It’s a positive sign to finally see inflation falling. However, it’s still only a small drop and there is certainly some way to go to reach the 2% target,  so we could still see further increases in the base rate until inflation starts to fall at a quicker rate.

“The concerns around inflation and the cost of living crisis have led to a slower housing market compared to what we’ve become accustomed to over recent years, so we are now seeing lenders going toe to toe to fight it out on winning a larger market share from a reduced pool of transactions.

“Fixed rates continue to fall and we could start to see some low 4% deals materialise and, if we’re really lucky, high 3s.”

Riz Malik, director of Southend-on-Sea-based R3 Mortgages:

“Inflation has declined and should continue to decline. However, we are not out of the woods yet. Even with this data, I would be surprised if the Bank of England does not raise interest rates again at least once in the coming months. Lenders are lowering rates to attract new business by reducing the margins they previously built into their products. This trend will continue but do not expect mortgage rates to return to the good old days.

“If the Bank of England’s forecast that inflation will fall dramatically by the end of this year is correct, this could result in a reversal of rate increases. This helps to explain why many people are still hesitant to take long-term fixed rates in the current market.”

Justin Moy, founder at Chelmsford-based mortgage broker, EHF Mortgages:

“Inflation will take more time to see a significant fall, as rising food costs in particular continue to keep the rate above 10%. For mortgage rates, this news won’t make a huge difference, although everyone will be fearing the Bank of England announcement later this month on Base Rate. A month-off any rate increase would be useful! Fixed rates continue to slip, rather than slide, as many of the lenders align their deals against their peers. No one is brave enough to stick a sub-4% fixed deal on the market just yet, but if a few lenders decided to do the same on any given day, that would work nicely. But enquiry numbers are starting to improve this year so far, which is a big positive.”

Rhys Schofield, managing director at Derbyshire-based mortgage advisors Peak Money:

“Funnily enough, the back seems to have been broken on inflation not because the BOE successfully made normal peoples lives difficult with rate rises but because a lot of stuff such as gas and fuel had got a lot cheaper on a global level. You have to question was it, and is the misery worth it?”

Graham Cox, founder of the Bristol-based broker,

“Whilst only a small drop in December, two consecutive months of falling inflation figures is great news.  The tide may finally be turning, which may allow the Bank of England to hold off on a base rate rise on February 2nd, though I suspect a small rise of 0.25-0.5% is more likely.

“If the base rate is held at 3.5%, then it’s possible fixed-rate mortgages could drop to 4.25-4.5% for borrowers with large amounts of equity and pristine credit scores.

“Competition amongst lenders is fierce as the housing market cools, so we could see banks and building societies accept skinny margins for a while to maintain market share.”

Lee Johnson, director at Worthing-based broker, Willow Private Finance:

“Since the end of last year, we have seen a weekly reduction by high street and challenger banks in their mortgage rates. Some reductions have been far larger than we had seen in previous years. UK inflation reductions will have an impact as a large part of the decision-making process for lenders is sentiment based. Meaning that confidence in the economy and the decisions that underpin it will influence their concept of risk. In addition, the competition between lenders has increased significantly since September 2022 when the decoupling of the OIS (Overnight Index Swap) rates appeared in response to the mini-budget. This allowed lenders far more flexibility as lenders have more freedom to set their own rates and terms, which can potentially lead to more customized mortgage products and better terms for borrowers.”

Jonathan Burridge, founding adviser at hybrid mortgage adviser, We Are Money:

“Perhaps the doom and gloom mongers (of which I was one) were over-egging the forecasts. Perhaps it will turn out that we have had a bump in the road and all will smooth back down. Mortgage fixed rate pricing is behaving as expected and we will see rates drop some more and they are likely to wriggle around for a while. Base rate will rise, perhaps not as much as some had forecast. It is still too early to think we are out of the woods.”

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