The Consumer Prices Index (CPI) rose by 2.8% in the 12 months to April.
This is down from 3.3% in the 12 months to March, according to the Office for National Statistics (ONS).
Core CPI – which excludes energy, food, alcohol and tobacco – was also down, rising by 2.5% for the year to April versus 3.1% in March.
The CPI including owner-occupiers’ housing costs (CPIH) increased by 3% – down from 3.4% in the year to March.
‘Welcome’ easing
David Hollingworth, associate director at L&C Mortgages, said: “The rate of inflation was expected to hold firm when compared with the jump that occurred last month, so an easing led by lower utility costs will be welcome. However, the ongoing conflict in Iran seems no closer to resolution and has been driving market anxiety that higher rates of inflation are here to stay.
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“That, in turn, raises an expectation that interest rates will have to remain higher for longer. Mortgage rates have already reacted to that, and fixed rates are elevated compared to only a few months ago when further base rate cuts, not rises, seemed just round the corner.
“The peak of the initial spike in fixed rates has now eased and many lenders have made more than one cut to their rates in the last month.
“L&C’s remortgage tracker shows that the average of the top 10 lenders’ best two-year remortgage fixed rates has eased back to 4.78%, the lowest level since the end of March and well below the peak, which saw the average rate surpass 5%.
“We’ve continued to see lenders making further cuts, but this is in the face of swap rates that are still 30 basis points higher than last month. Although there have been some further mortgage improvements announced this week from Barclays and Halifax, the number and size of cuts has looked to be thinning. We’ve also seen some smaller lenders have to revise some rates upwards.”
Hollingworth continued: “Today’s figures may help to improve that outlook a little, but mortgage borrowers can’t afford to relax, as markets look through the better-than-expected inflation numbers at what may be yet to come. The ongoing forecast is likely to include base rate increases and borrowers can’t bank on more significant drops in mortgage rates.
“Borrowers are likely to face a bumpy ride and those coming to the end of an existing mortgage should look to secure a new rate a few months in advance of the end of their current deal. That will lock a new rate in but still provide the flexibility to keep it under review until the point of completion.”
Caitlyn Eastell, personal finance analyst at Moneyfactscompare.co.uk, echoed Hollingworth’s thoughts on the mortgage market outlook, saying: “The mortgage market remains highly reactive to ongoing shocks, and swap rates have continued to spike following escalating tensions in the Middle East and the uncertainty around the UK’s political landscape.
“Interest rates remaining higher for longer will quickly burden borrowers, squeezing their budgets and how much they can afford. Millions of households are due to remortgage, but those coming off an ultra-low five-year fixed rate should be prepared to see their repayments spike by more than £5,400 a year.
“First-time buyers may wish to choose a longer mortgage term as it can help with affordability pressures; however, it also means they may end up paying significantly more interest.”
Eastell added: “Tracker mortgages can look competitive on price, but they leave borrowers more exposed to volatility, as any change in the Bank of England base rate is directly passed through to monthly repayments. It’s crucial that borrowers seek advice to ensure they get the best possible deal to suit their needs.”