Sunak's Inflation Victory Leads to Reduction in Mortgage Rates

The six largest mortgage lenders in Britain are now offering mortgage rates below 5%, following official figures confirming a two-year low in inflation.

 

Barclays and HSBC have joined their counterparts in announcing reductions in mortgage rates, responding to data from the Office for National Statistics (ONS) revealing a drop in inflation to 4.6% last month. The alleviation of cost-of-living pressures has led financial markets to anticipate accelerated cuts to borrowing costs, attracting investors to UK shares and bonds.

 

Barclays is set to announce a reduction of up to 0.3 percentage points across its home loan range, with the new rates taking effect tomorrow. Notably, the bank will offer a two-year fixed-rate loan at 4.8% for residential house buyers with a 40% deposit, down from the previous 5.1%. HSBC, having cut rates by 0.35 percentage points on residential and buy-to-let mortgages, follows a trend initiated by Halifax earlier in the week. Last week, Nationwide, NatWest, and TSB also reduced their mortgage rates amid speculation that the Bank of England might begin cutting interest rates from the current 5.25% next year.

 

The series of rate adjustments means that all six major mortgage lenders in Britain are now providing deals below 5%. Analysts suggest that rates could potentially approach 4% by the end of the year. Jack Meaning, chief economist at Barclays UK, remarked, "With inflation continuing to soften, it increasingly looks like we have reached the top of the interest rate cycle."

 

Recent inflation figures confirmed a rapid decline from 6.7% in September to 4.6%, marking a significant achievement of Rishi Sunak's goal to halve the headline rate. The Prime Minister emphasized the impact of inflation on daily expenses, highlighting the importance of reducing it through tough decisions and fiscal discipline.

 

This drop in inflation now allows savers to find savings deals that outpace inflation for the first time in two years. Notably, the best easy-access account at Ulster Bank, offering 5.2%, surpasses the inflation rate, along with competitive one-year and two-year fixed-rate deals from Metro Bank and JN Bank.

 

The ONS attributes the decline in inflation to falling energy costs, cheaper hotel stays, and stabilized food prices. The October reading, below 5%, is the first time inflation has dropped below this threshold since October 2021. Grant Fitzner, the ONS's chief economist, highlighted that a decrease in energy bills contributed significantly to the headline rate's 2-percentage-point fall. The recent Ofgem price cap, effective last month, limits typical household energy bills to £1,834.

 

Core inflation fell more rapidly than expected to 5.7%, down from 6.1% in September, and services inflation also dropped from 6.9% to 6.6%. These developments raise hopes that the Bank of England will be able to cut interest rates more swiftly next year, with investors predicting reductions from the current 5.25% to potentially 4.75% by September. The positive economic news is reflected in the financial markets, with the FTSE 100 rallying by 0.6%, and the FTSE 250 climbing 0.76%.

 

Inflationary pressures are also easing in the US, where factory gate prices fell by 0.5% between September and October, relieving pressure on the Federal Reserve to maintain high-interest rates. Elsewhere, the European Commission revised down its forecasts for economic growth, citing the impact of inflation, now expecting eurozone GDP to grow by 0.6% this year, down from earlier hopes of 0.8%.

 

Whitestone Solicitors 

Rochdale 

 

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