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Mortgage outlook: Evaluating the impact of falling inflation


A cost-of-living crisis coupled with changeable borrowing conditions have made it a financially unsettling few years for property owners, with some facing rising mortgage costs and increased pressure on household income.

And with the Bank of England deciding to hold interest rates at 5.25% in June 2024, questions have arisen regarding when and if this situation might ease.

In this article, we look at the interplay between inflation, interest rates and mortgage costs, reflecting on the rollercoaster of recent times and looking at how the situation might evolve in the months and years ahead.

Rates of change

Firstly, to contextualise the situation facing property owners in 2024 it is worth rewinding just a few years to highlight how much things have changed.

In December 2021, with the Official Bank Rate still at the post-pandemic low of 0.1%, the average interest rate (according to MoneyFacts) for a two-year fixed mortgage was 2.34% and those on a standard variable rate (SVR) paid an average of 4.40%. Fast forward two years and these figures stood at 6.04% and 8.19% respectively, translating into higher monthly repayments.

The driver for this change was a dramatic increase in inflation, which soared to a 41-year high of 11.1% in October 2022. But despite sinking back to the Bank of England’s target of 2% since then, it has not been matched by such a precipitous drop in borrowing rates for property.

Impact on affordability

The net result is that affordability continues to be a pressing concern for those looking to finance a new purchase or refinance monthly repayments on an existing property. Many coming to the end of fixed-term deals with lower rates have experienced an unwelcome jump in mortgage costs, and the Bank of England forecasts that around three million more households will find themselves in this predicament over the next two years.

Increases of more than £100 a month are expected for around 30% of mortgage holders while a relatively small proportion of 400,000 households are predicted to face the uncomfortable prospect of “very large” rises.

Market information provider Moneyfacts offered a sliver of silver lining with data that showed slight falls in the cost of borrowing in the six months to June 2024. Indeed, mortgage rate cuts have been announced by several major lenders since June, leading some commentators to question whether there are the beginnings of a downward shift in mortgage rates.

Future predictions

Speculation is also growing around whether the Bank of England’s Monetary Policy Committee will cement this direction by reducing the Bank Rate when it next meets on August 1. Such a move would align with widely held predictions among economists that interest rates will begin to fall from the second half of 2024 amid forecasts of economic growth and continued low unemployment.

Earlier this year, the International Monetary Fund (IMF), a major financial agency of the United Nations, recommended that the Bank of England target a reduction in the Official Bank Rate to either 4.75% or 4.5% by the end of this year, followed by a further cut of 1% in 2025. In total, this could represent a drop of 1.75% from current levels.

However, there are many complex factors that play into such a decision. For example, while the annual CPI inflation rate has fallen to target levels, other inflationary measures, including core inflation and services inflation, remain elevated, giving the MPC cause to exercise caution when it comes to reducing interest rates.

Benefits of a broker

If they were indeed to materialise, variable rate mortgagors, who make up around 18% of the total stock of mortgages, would feel an almost immediate benefit. And for those already managing higher repayments, such a move could also open the door to refinancing borrowing at lower rates as their current deals expire in coming years.

As it stands, however, the outlook remains unclear for property owners. Amid these conditions, an independent broker can be particularly beneficial for anyone faced with the need to finance a property or refinance their property debt.

Brokers who are fully independent can scan products across the whole of the market, with an objective to uncover deals aligned to your particular situation. This can provide reassurances that you are considering the most competitive choices from all available options rather than simply looking at a limited selection.

Furthermore, at a personal level, the ability to draw on the knowledge and experience of a property-lending professional can provide you with valuable support and guidance in what are uncertain and potentially unsettling times.


The information contained within this communication does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied is given in relation to such information. Vintage Wealth Management or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication.