Mortgage Lenders Cut Rates Amid Falling Inflation Hopes

Mortgage Lenders Cut Rates Amid Falling Inflation Hopes


Mortgage lenders are responding to shifting economic dynamics, as falling inflation sparks hopes for a quicker-than-expected reduction in the Bank Rate this year. This development comes on the heels of NatWest's recent announcement of rate cuts for remortgage and tracker deals, signaling a broader trend in the mortgage market.

The decline in headline inflation to 3.4 percent, its lowest level since September 2021, has prompted a dip in swap rates—the primary pricing mechanism for fixed mortgages. This dip in rates provides lenders with greater flexibility to adjust their pricing and alleviate affordability pressures on borrowers.

Despite market expectations of the Bank of England maintaining the Bank Rate at 5.25 percent, mortgage experts foresee further rate cuts in the pipeline. Simon Gammon, from Knight Frank Finance, anticipates potential cuts of up to 0.40 percentage points as lenders aim to stimulate market activity.

"Lenders want to reprice and stimulate activity. They want to lend. Margins are tight at the minute, so the more business they can generate, the better this is for them and the property market," Gammon explained. He emphasized that lenders do not necessarily wait for Bank Rate changes but base their decisions on market expectations, which often precede official rate adjustments.

Richard Harrison, head of mortgages at Atom Bank, echoed these sentiments, noting that Wednesday's inflation figures have heightened expectations of lower mortgage rates. He also pointed out the moderation in house price declines, as indicated by the Office for National Statistics' data showing a mere 0.6 percent drop in house prices over the twelve months to January.

However, some experts urge caution, citing persistent wage pressures that could undermine efforts to contain inflation. Dr. Dean Buckner, formerly of the Bank of England, highlighted the risk of inflation resurging if wage pressures intensify. "Corporates are trying to keep prices down. They want to get products to market at competitive prices. If wage pressures increase, inflation could start bursting out again," he cautioned.

The cautious outlook stems from historical precedents, such as the experience of the Federal Reserve in 1964 when inflation resurged despite initial containment efforts. Buckner likened inflation to a "wild beast," emphasizing its unpredictability and potential to defy expectations.

Despite these warnings, the prevailing sentiment among lenders and experts is one of cautious optimism. The prospect of lower mortgage rates and a potential easing of affordability pressures bodes well for both borrowers and the property market as a whole.

In conclusion, the mortgage market is undergoing a period of adjustment in response to changing economic conditions. Falling inflation has prompted mortgage lenders to reassess their pricing strategies, with rate cuts being announced to stimulate market activity. While optimism abounds, experts warn of the persistent threat posed by wage pressures and the unpredictability of inflation. Nonetheless, the outlook remains positive, with the potential for lower mortgage rates to benefit borrowers and support the housing market in the coming months.


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