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Mortgage rates if inflation falls

Journalist: Callum Mason, i

ended 20. May 2024

Inflation is set to fall to around 2% when the latest reading is released this Wednesday.

If this happens as suspected, is it likely to lead to a reduction in fixed rate mortgages? Or will the Swap market have already priced in the reduction?

13 responses from the Newspage community

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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Expecting a positive inflation figure this week is akin to expecting Rishi Sunak to be Prime Minister at Christmas, namely highly unlikely. With economic data showing we bounced out of recession quicker than expected, it probably means that inflation may have ticked up rather than fallen to a level at which the central bank will cut rates. Summer won't see a rate cut from the Bank of England. Instead, this will come in the autumn when the economy is likely to dip back into the doldrums.
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Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
Markets will generally price in expectations so it may only be if the figures are a surprise either way that we see SWAP rates react. However, there will be some lenders waiting to see the actual figures before considering repricing as SWAP rates are just one factor used when they do this.
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Ben Perks
Managing Director at Orchard Financial Advisers
Borrowers have been put through the wringer in efforts to hit the magical 2% inflation target. If we get there, I would hope that they are rewarded and rates reduce. Markets will react favourably to a positive print on Wednesday and swap rates should fall. Historically, lenders have been pretty good at passing savings onto mortgage borrowers, so if they get the money in cheaper, we should see better rates available to customers.
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Michelle Lawson
Director at Lawson Financial
An anticipated reduction in inflation will be a beacon of light after so many grim and foreboding months. It should incentivise the Bank of England to reduce the base rate as early as 20th June. Lenders will have plans afoot for pricing accordingly so hopefully we will see some good rate reductions start to filter through. This could be the much needed turning point for the market.
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Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
Achieving the 2% inflation target and a subsequent Bank of England base rate cut could be the catalyst that invigorates the housing market, giving consumers the confidence to move, upgrade or buy their first home. With SONIA swap rates already reflecting expected base rate reductions, fixed mortgage rates might not see significant changes immediately. However, as demand surges, lenders could face operational pressures, potentially prompting them to hike fixed rates to manage the influx. While such measures are typically short-lived, it underscores the importance for prospective buyers to act swiftly and explore various mortgage options to secure the best deals. Exciting times are ahead, but decisiveness and savvy shopping will be key.
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Dariusz Karpowicz
Director at Albion Financial Advice
That would be a very positive signal from the economy, but I don't think it would be enough for mortgage rates to drop massively in a short period of time. If inflation does fall to around 2% as expected, it might encourage lenders to gradually lower fixed rate mortgages. However, the Swaps market has likely already priced in some of this anticipated reduction. Borrowers should keep an eye on developments, but it’s important to manage expectations for immediate, significant rate cuts. Any reductions will probably unfold slowly rather than all at once.
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Justin Moy
Managing Director at EHF Mortgages
I don't see a huge impact on mortgage rates given the markets have already priced a rate cut in during the summer months. What is more important is the discussion about the subsequent cuts, as the timing and confidence to make that cut to below 5% will drive the Swap rate pricing curve. Some lenders may take the opportunity to price more competitively over the summer, when application numbers do tail off for the holidays, but the real change will come when the path of future cuts is much clearer.
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Elliott Benson
Owner at Sett Mortgages
Definitely looking like we will see a reduction if inflation falls to 2% as this will be seen as the kickstart for base rate reductions and the positive news we have all been waiting for.

The feeling I get from lenders is that they want to lend and they will reduce, I think it will take this plus a reduction in the base rate and then we will start to see the benefit
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Mark Hosker
Mortgage Adviser at Cyborg Finance
If CPI inflation drops close to the 2% target as expected, it could influence fixed-rate mortgage pricing. However, it's important to remember that the Bank of England anticipates inflation rising slightly in the latter half of the year. SWAP rates, which reflect market predictions on future Bank of England base rate actions, have likely already priced in these inflation forecasts. Thus, while we may witness some minor reductions in fixed-rate mortgages, significant decreases are unlikely at this stage.

For those coming to mortgage decisions, focus on affordability. The rate you pay is the rate you pay, and waiting for big decreases that may never come could turn out to be expensive. Long-term fixes might not be particularly attractive under current conditions.
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Peter Stokes
Director of Mortgages at Davidson Deem
Base rate falls have been priced into swap rates, but the big question is when will base rate fall? An inflation figure of 2% is going to put huge pressure on the Bank of England to cut base rate. Once the money markets know that base rate is on the downward slope, cheaper fixed rates will undoubtedly follow.
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Ben Tadd
Director at Lucra Mortgages
Wednesday is a big day for the mortgage market and could trigger the start of a new mini-rate war between lenders. With inflation hotly anticipated to drop down to the magic 2.00% mark, or at least very closely above this level, mortgage lenders will be poised and ready to reduce their rates and stay ahead of the competition. A significant drop in inflation will lead to further mounting pressure on the Bank of England, to drop the base rate to help ease the burden on millions of mortgage households in the UK who have now felt the impact of high rates for a sustained period.
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Gary Bush
Financial Adviser at MortgageShop.com
The current prediction of an inflation figure being announced in the much-needed 2% zone will be the news that UK mortgage account holders have been waiting for. Surely the Bank of England will act sooner than August to decrease the base rate if this does occur, household budgets very much need to see this activity.
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Anil Mistry
Director and Mortgage Broker at RNR Mortgage Solutions
Despite potential shifts in the SONIA swap rate this week after the inflation figure, the pivotal factor for mortgage rates will be the Bank of England's Monetary Policy Committee (MPC) meeting in June. The focus will be on whether the MPC decides to adjust interest rates. Although a reduction currently appears unlikely, any changes or signals from the Bank of England will substantially impact the trajectory of mortgage rates. This makes the upcoming MPC meeting a critical watchpoint for borrowers seeking to remortgage and home movers.