Will improving economic news trigger a Mortgage War?

There is speculation that the recent spate of figures from the UK economy may prompt a war between mortgage providers as they seek to woo customers.

Inflation in the UK dropped to 6.8 per cent in the year to July from 7.9 per cent in June, according to the Office for National Statistics. This is the second month in a row that the rate of inflation has dropped sharply and it is now at a 15-month low.

However, although the latest figure was driven by a reduction in the energy price cap and food costs rising less rapidly - particularly milk, bread and cereals - core inflation (stripping out energy and food) remains relatively high.

The inflation news follows data showing that wages grew at a record annual pace in the April to June period: regular pay rose by 7.8 per cent, the highest annual growth rate since comparable records began in 2001.

Now some mortgage industry commentators say that while there remains concerns about the speed of improvement of the UK economy, some lenders may become aggressive in their attempt to woo customers.

Kate Steere, deputy editor and housing expert at personal finance comparison site Finder, says: “I’m hopeful this fall in inflation could lead the Bank of England to pause its base rate hikes at the next Bank of England monetary policy committee meeting. This could help provoke a mortgage price war amongst the big providers, resulting in some more competitive rate options finally hitting the market. This would give some much-needed relief to prospective buyers and mortgage holders in the UK.”

And Ben Thompson, deputy chief executive of the Mortgage Advice Bureau, adds: “Inflation being below average wage growth could mark a turning point in the cost of living crisis, and potentially signal good news for mortgage customers, with lenders already reducing their rates and more manageable payments becoming a reality.”

Paresh Raja, chief executive of Market Financial Solutions, states: “We should allow some positivity to permeate back into the property and lending markets. After a challenging 18 months, any time inflation falls should be welcomed, and we could see such good news reflected in the products and rates available to property buyers. Still, lenders must double down on a proactive approach to supporting brokers and borrowers who will be feeling the effects of high inflation and consistent base rate hikes. In turn, lenders can help the market return to a more buoyant state."

However, not all analysts share that optimism.

Jatin Ondhia, CEO of Shojin, claims: “There are strong rumours that next month’s data will show a rise in inflation once again. This story is far from over - Rishi Sunak and Jeremy Hunt’s target of bringing inflation under 5.0 per cent by the end of the year is looking increasingly out of reach, and that will have implications on consumers, investors, businesses and the financial markets.

“Even with today's fall, inflation remains high, and if indeed it does rise again next month, we have to expect the Bank of England to come hard with more interest rates hikes. As borrowing becomes more expensive, this will inevitably further impact house prices and property development.”