The news, which comes a week ahead of Bank of England’s next interest rate decision, has eased fears of a Base Rate hike.
However, with ongoing uncertainty around the conflict in Iran, which has recently reignited, there are concerns inflation will increase again.
This is because the price of oil has been pushed up by the ongoing strikes, and this is likely to feed through to petrol prices when the next Consumer Prices Index (CPI) – which measures inflation – is published.
Indeed, this threat has an impact on mortgage pricing, pushing up Swap rates and forcing lenders to raise their rates accordingly. Just this week many of the top lenders have increased rates by up to 0.20%.
David Hollingworth, associate director at L&C Mortgages said: “Borrowers will be hoping today’s inflation figures provide some reassurance following the uncertainty created by the ongoing strikes in Iran, which has seen several major lenders increase their fixed mortgage rates in recent days.”
He added: “Today’s inflation figure is welcome news for borrowers, and the fall could take a little pressure off the Bank of England’s MPC to take immediate action to raise interest rates in the near term.
“Although it could allow more time to assess how inflation continues to evolve, borrowers can’t expect today’s figures to trigger a reversal in recent mortgage rate increases and we are likely to see further upward moves by lenders.”
What mortgage borrowers can learn from this
This mixed bag of fortunes might seem confusing to borrowers. On the one hand inflation has fallen which means the cost of living is lower and there’s greater hope interest rates will remain steady. But, on the other hand, mortgage rates are rising.
If you feel confused and wondering what this means for your mortgage – that’s understandable. As such the expert advice across the board is to move quickly if you are about to take out a mortgage.
Sarah Coles, head of personal finance at AJ Bell, said: “Mortgage rates had been falling across the board, but this week has seen them jump significantly, as the markets began to expect earlier rate rises, and swap markets started to price them in.
“This demonstrates how difficult it can be to second-guess where the mortgage market is heading at a time of such uncertainty.
“It’s also why it’s not worth hanging on for rates to hit a magic number, even if the market has been moving in one direction for a while.
“Instead, if you have a remortgage due in the next six months, check if you can agree a deal for your remortgage now. If rates fall from here, you can shop around elsewhere, but if they rise again, you’ll have locked in a competitive rate.”
This advice was echoed by Hollingworth who said borrowers shouldn’t feel they have to panic, but nor should they delay reviewing their options.
“Mortgage rates can move quickly, as we have seen over the past week, so anyone approaching the end of their current deal or planning to buy a home should consider securing a competitive rate sooner rather than later,” he explained.
“Most lenders will still allow borrowers to switch to a cheaper deal before completion if rates ease again, giving them certainty now and flexibility if the market moves in their favour later down the line.”