Mortgage rates set to fall with end of hiking cycle in sight

Homeowners have been given a glimmer of hope, as a number of the nation’s biggest lenders look set to continue cutting rates on their fixed mortgage this week, in a sign of growing expectations that the Bank of England may be nearing the end of its existing cycle of interest rate rises.

The Bank of England is widely predicted to hike interest rates this week, but there are growing signs that pressure on policymakers could be easing.

Nationwide reduced rates on Friday by up to 0.35% after HSBC became the first major lender to cut its deals on Wednesday, dropping its rates by an average of 0.15%.

Most economists think the Bank will raise the base rate by 0.25% on Thursday.

It would be the 14th consecutive increase, but would mark a smaller uplift than the surprise 0.5% point hike in June.

Experts think the latest UK inflation data has taken some of the pressure off the central bank, because it showed a bigger-than-expected slowdown in price rises.

Consumer Prices Index (CPI) inflation stood at 7.9% in June, down from 8.7% in May and the lowest rate since March 2022, according to official figures from the Office for National Statistics (ONS).

Consequently, rates may not need to climb as high as feared as the Bank looks to bring inflation down to its 2% target.

It comes as both the European Central Bank (ECB) and the US’s Federal Reserve hiked up respective interest rates to two-decade highs last week week.

Both central banks opted for a 0.25% increase amid in the global effort to control rampant inflation.

In the UK, economists think a quarter-point increase would take interest rates to 5.25% this week, with at least one more rate hike to come in the near-term.

“Beyond this month (August), we’re sticking with our prediction of another increase in rates in September, at which point the present rate rise cycle should come to an end,” predicted Andrew Goodwin, chief UK economist for Oxford Economics.

Paul Dales, chief UK economist at the consultancy Capital Economics, concurred: “While there is probably enough inflationary pressure to prompt another hike at the following meeting in September, to 5.5%, we think that a mild recession and an easing in both wage growth and core inflation will prevent further hikes.”

With the end of interest rates rises in sight, there is some greater optimism around house prices.

Riz Malik, director of mortgage brokers R3 Mortgages, said: “There is probably more life on Mars than there is in the UK housing market at the moment. But if interest rates have almost hit their highest point, things could start to improve.

“This week, some lenders have started to lower their mortgage rates marginally due to favourable market conditions.

“So, even if the base rate goes up next week, if the expectation is that interest rates won’t go much higher, we could start to see an increase in property transactions if the cost of borrowing improves.”

This article is taken from Property Industry Eye.