There’s widespread expectation that the Bank of England’s monetary policy committee will cut base rate again this Thursday.
Analysts are almost unanimous in forecasting a quarter of a per cent cut – and many lenders are already factoring this into their deals.
Governor Andrew Bailey has made it clear that slightly higher inflation needs to be balanced against threats to growth.
GDP fell in both May and June, and with a backdrop of heightened global uncertainty and trade wars, there are some powerful headwinds. In this environment, it is considered essential by some analysts that higher rates don’t risk making things worse. Meanwhile, the weakening jobs market, and the slowing of pay rises, mean less risk of higher wages feeding further inflation.
Sarah Coles, head of personal finance at business consultancy Hargreaves Lansdown, says: “Fixed mortgage deals have been drifting gradually down for some time, with the average two-year fixed rate falling from 5.2% three months ago to 5.03% according to Moneyfacts.
“They had bumped up slightly in the recent past, so in the last couple of days some banks have been cutting them in anticipation of a Bank of England rate cut. Assuming the rate is cut … we could see some competitive deals emerge after the announcement. However, further out, we may see cuts slow in the coming weeks.
“This is partly because expectations haven’t changed as much recently and are increasingly priced in. It’s also because lenders don’t want to go too far or too fast, or people who have already agreed a rate in advance will abandon it in favour of a cheaper one.”
And for the first time since September 2022, the average two-year and five-year fixed mortgage rates are now identical at 4.52%, according to Rightmove’s mortgage tracker.
The portal says the narrowing gap reflects growing market confidence that interest rates will fall, with the Bank of England widely expected to cut the base rate.
Matt Smith, Rightmove’s mortgage commentator, says: “Over the last week, average mortgage rates have remained pretty flat in the build up to next week’s interest rate decision.
Expectations are currently set on a cut … and I expect lenders will use this moment as an opportunity to reduce mortgage rates a little further.
“Rate drops have been very slow and steady this year, but someone looking to take out a mortgage right now is likely to see a notable reduction in the rate they’d have been offered this time last year, particularly someone looking to fix for two years.
“With average two-year and average five-year fixed currently level, it would appear to onl be a matter of time before the typical two-year rate is cheaper than the five-year equivalent.”
Mark Harris, chief executive at SPF Private Clients, add: “[Housing] Transaction numbers have risen again as base rate reductions encourage activity and enable borrowers to plan ahead with more confidence. Lenders continue to trim their mortgage rates, while easing of criteria should also enable borrowers to take on bigger mortgages in coming months.”
