Could falling inflation ignite property market if mortgage rates reduce?

The stars have aligned for the Bank of England to act and continue the rate cutting cycle. We have started seeing a reduction in market rates that impact fixed rate mortgages last week and that is likely to continue. Lenders should have the confidence to make some decent cuts in the next couple of days. Will this kick start the market? It will help but a bigger stimulus is needed. We need stamp duty cuts to get Britain moving but that’s not going to happen any time soon .

Inflation falling from 3.4% to 3.0%, with core inflation also easing, will support the downward move we have already seen in swap rates. Two-year swaps in particular have been edging back towards 2024 levels, reflecting growing confidence that the Bank of England will cut in March. Lenders have been active in recent weeks, trimming and repricing as they compete for market share.

A 0.25% cut would help steady the market. But we have to keep this in context. Growth is weak, unemployment has risen to 5.2% and affordability remains stretched. That is not the backdrop for a property boom but may keep things steady.

What it should do is ease some of the pressure on the millions coming off five-year fixed deals. Payments may still rise compared to ultra-low pandemic rates, but the jump is likely to be less severe than many feared six months ago.

Inflation falling to 3% is exactly what the mortgage market has been waiting for. This gives the Bank of England clear runway to cut rates and swap markets are already pricing that in. We could see movement as early as March. After a Budget-induced freeze in Q4, this changes everything. Lower rates mean better affordability, and affordability drives transactions. If swaps fall and lenders pass cuts through, we're looking at a potentially very busy spring. The question isn't whether rate cuts are coming, it's how quickly lenders respond. If inflation holds at or below 3%, expect real competition among lenders by April. For buyers on the sidelines since October, this is your signal, for sellers waiting for momentum, it's coming.The property market has been coiled and ready. Falling inflation just released the spring.

This significant drop in inflation seems to be in line with market expectations, so that would have been accounted for in the recent Swap rate pricing, therefore it’s unlikely we’ll see an immediate effect on mortgage deals. But as momentum gathers across GDP, unemployment and inflation, the Bank of England will have little option but to cut rates, bringing some further cheer to mortgage holders later in the year.

Swap rates, which fixed rate mortgage are prices off, have already been falling and inflation dropping to 3% should see them head even further south. That translates into lower mortgage rates for borrowers, which improves affordability and gives more people the scope to buy. We could be in for a very busy Spring period for the property market and the chances of a rate cut in March have now been boosted significantly.

It’s the 90th minute, and the Bank of England has just entered the field as the ultimate super sub, slashing the base rate to 3.0% in a game-changing play. This decisive move is already filtering into the mortgage market, forcing fixed rates into a sharp downward trend.

But for those on the sidelines, the dynamic is shifting fast. Cheaper borrowing is emboldening sellers to return, yet they are being met by a sudden wave of re-energized buyers clambering for stock. This surge in competition is destined to force sale prices up. If you were waiting for the bottom, you’ve likely just missed it. The final whistle is blowing on the buyer's market, and the window of opportunity is slamming shut.

Brokers have said they've been busy as lenders reprice downwards on the back of falling swap rates and they could be about to get even busier. This fall in inflation gives the Bank of England all the ammo it needs to cut the base rate and swap rates could fall further. It's not long until march and it is starting to feel like spring has arrived early for the property market.