Homeowners hoping for lower mortgage rates have been dealt a fresh blow after inflation jumped to 3% – dashing hopes of a price war among lenders and adding to the headaches facing the Bank of England.
Mortgage experts now warn that the sub-4% deals, which recently sparked excitement among borrowers, could soon disappear.
The shock rise in inflation, up from 2.5%, has rattled markets, making it less likely that the Bank of England will cut interest rates any time soon.
So-called swap rates, which are the interest rates financial institutions charge to one another to borrow, have been rising following news of the inflation rate rise.
Harps Garcha, Director at Brooklyns Financial, said: “With swap rates reacting sharply, recent mortgage rate reductions may be short-lived. Those looking to secure new a fixed rate for their mortgage should consider acting sooner rather than later, before lenders adjust rates in response to the shifting market.”
Stephen Perkins, Managing Director at Yellow Brick Mortgages, told Newspage: “With inflation rising more than expected on the latest print, expectations around further Bank of England base rate cuts have been tempered.
“It’s likely some of the best priced deals currently available will be pulled shortly. So buyers or remortgage clients should act quickly to secure a rate.”
Lewis Shaw, mortgage broker at Shaw Financial Services, delivered a grim warning: “The UK bond market’s reaction will dictate how long the new sub-4% mortgage deals last – but I suspect they’ll vanish quickly. That’s a major setback for homeowners looking to remortgage this year.”
The surge in inflation, coupled with stronger-than-expected wage growth, has put the brakes on expectations for cheaper mortgage rates.
David Hollingworth of L&C Mortgages cautioned: “With lenders already working on tight margins, we could see rates holding steady – or even rising again.”
Only last week, Barclays joined Santander in slashing rates below 4% for customers with big deposits. Many had hoped other banks would follow suit, but experts now say those dreams could be dashed.
Former Bank of England rate-setter Andrew Sentance warned that financial markets may soon have to “digest the prospect of 4% plus inflation in the summer.” Meanwhile, Deutsche Bank Research has already forecast inflation rising above 4% this year.
What does this mean for mortgage holders?
Experts advise those with fixed-rate mortgages expiring soon to lock in a new deal at least three months in advance to avoid potential hikes. Borrowers could also consider tracker mortgages, which follow the Bank of England base rate – but these carry the risk of rising if rates don’t come down.
For now, homeowners waiting for cheaper deals may be left disappointed – and the dream of sub-4% mortgage rates could be slipping away fast.
