Mortgage market moves after yesterday's inflation data

So far, I haven't seen a reduction in mortgage lenders' interest rates on offer. Lenders have still been emailing this week to advise of rate increases, so I think it is too early to breathe a sigh of relief just yet. Sentiment may have improved but, for now at least, it hasn't translated into a major lender repricing downwards.

Generation Home were the first lender to send a "we are reducing our rates" email last night. This is the first of its kind in weeks so it is a welcome change for brokers and their clients. Hopefully, we will see more lenders follow suit in the days and weeks ahead.

I had an interesting email yesterday. So unexpected I had to read it twice. In a sea of emails telling me that rates are increasing, there was an email from NatWest that also told me about rates increasing. However, at the very bottom, were the words “rate decreases of 5bps on selected 5-year deals”. It feels like a long time since I’ve seen that word: decrease. Now, for context, this is applicable just to existing customers looking to switch to a new deal and the reduction in rate is tiny, but still, worth a mention.

There are most definitely some positive signs in the mortgage market and wider economy, but let's not get ahead of ourselves. Inflation still stands at 7.9%, and whilst it has dropped, it doesn't mean things are getting cheaper, it just means they are not getting more expensive as quickly. Marginal moves in the average two-year fixed rate could be attributed to many things, as simple as one lender withdrawing products for a time to relaunch. Therefore, whilst there are signs of positive moves, I do not expect this to slow down the Bank of England's projected base rate growth plan to reduce inflation back to a 2% target. Those that have been through these economic cycles before will know they are not solved in a matter of months but can take several years. We must add into the equation that 2024 is an election year and it is possible the real pain is to come in the first year of any new government, with the current one trying its hardest to avoid anything catastrophic in the interim.

Yesterday saw a small handful of mortgage lenders increasing rates. And whilst my email inbox is recieving less product updates from banks than in previous weeks, it's still early days following Wednesday's inflation data. A deeper dive into the figures, show that inflation figures for food and housing were are at 17.3% and 12.0% respectively. These are the figures that should ultimately be grabbing the headlines as we head into a stagnating market where many can't afford to spend money on anything else, as the essential costs of living, food and keeping a roof over our heads continue to rise. How the markets respond to that data may still take a few days to come out in the wash.

Lenders tend to factor in changes to their rates in anticipation of increases to the Bank of England base rate and rather than reducing them straight away, I think we are more likely to see them hold and take a breath rather than jump into reducing rates. I'd like to think we'll see a pause on the aggressive rate pulls but I don't think we'll be lucky enough to see a flurry of lenders reducing rates just yet. Hopefully, my pessimistic view is proven wrong but let's see.

The trend so far is the smaller, specialist lenders such as building societies and challenger banks returning to the market with new products, and lower rates. Having led the way in hiking rates and withdrawing products a few weeks ago, for larger lenders to then follow, the hope is now they're also leading the way and mainstream lenders will again follow their lead.