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How does the new inflation rate affect mortgage borrowers?

Whilst today’s announcement is positive for the UK economy, what does it actually mean for our pockets and for mortgage rates?

A photo of Daniel Sharpe-Szunko, the author

By Daniel Sharpe-Szunko

Published on: 22 May 2024

2 min read

How does the new inflation rate affect mortgage borrowers?

The Office for National Statistics (ONS) has announced today that the inflation rate for April has dropped to 2.3%, which is only 0.3% above the government’s target of 2%. Last month we heard that the inflation rate had dropped to 3.2%, which also meant that the UK economy was officially no longer in recession.

Inflation has slowed to 2.3% for the last 12 months to April as a result of falling energy prices, as predicted in last month’s update. The energy price cap is the main contributing factor and reflects in a similar drop in April 2023 which saw a drop in CPI inflation to 8.7%.

Whilst today’s announcement is positive for the UK economy, what does it actually mean for our pockets and for mortgage rates? There are still concerns that inflation could still increase again in Autumn as energy prices are expected to increase again slightly.

Economists including the International Monetary Fund (IMF), have again increased pressure on the Monetary Policy Committee (MPC) to reduce the base rate by 0.5% in 2024. Earlier this week, Ben Broadbent deputy governor of the Bank of England, had already hinted that interest rates could fall as soon as summer.

Previous predictions had suggested that the interest rate could be held at 5.25% until as late as November, which now looks unlikely. This should come as a ray of sunshine in otherwise gloomy economic times, especially for those households that continue to struggle with the higher cost of living.

Current estimations are suggesting that the interest rates could even be cut to as low as 4.5% this year, but this does seem far-fetched at the moment. It is likely that we will see a reduction of 0.25% as early as June and then potential for another drop of 0.25% to 0.5% later in the year, if things continue to stabilise.

Sky News released a report today which explains more about the inflation rate reduction and what this could mean for consumers in the UK.

BREAKING: UK Inflation falls sharply to 2.3%

Should I remortgage now or should I wait?

It’s likely that mortgage interest rates will now drop in the next 6 months in the UK and could be more competitive or affordable for borrowers. You can still secure an interest rate as early as 6 months before your current deal is due to end, this could be a safer option.

Mortgage borrowers should consider the costs of waiting for 3 to 6 months for rates to drop and how much that would costs, against the lower interest rates.

There is also of course the possibility that interest rates could still be held at around 5% and that we might not see a significant drop this year. You should carefully consider your options and your own financial situation, also make sure that you get proper advice from a mortgage specialist.

More home and mortgage news

Below are more of our recent news stories which impact mortgage borrowers and homeowners in the UK.

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Is a fixed rate mortgage a good idea now?

High mortgage interest rates have caused stress and concern for families across the UK over the last few years, and switching to a fixed rate mortgage can help in some situations.

A fixed rate mortgage offers more financial security compared to a variable rate, as your mortgage payments won't change during your 'fixed term'. You can choose for your mortgage rate to be fixed for either 2, 3, 5, or 10 years, depending on your lender and which option feels right for you.

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Everything you need to know about fixed rate mortgages - MPO

Will mortgage rates go down in 2024 UK?

Our MPO Money Mum & Dad are constantly checking the market to see what is happening with UK mortgage rates. Many economic experts now believe that the Bank of England base rate will go down by 0.25% in the Summer of 2024, with rates potentially settling at around 3.5% next year.

Banks will generally use the BoE base rate to decide which mortgage rates to offer, and certain types of mortgage (tracker rate mortgages) will be directly affected by any BoE rate changes.

What is the current mortgage rate UK?

UK mortgage rates will change over time, and currently the Bank of England (BoE) base rate is 5.25%. The BoE interest rate directly affects how much people on tracker rate mortgages will pay, and can also cause lenders to adjust their Standard Variable Rates.

Our MPO mortgage experts are constantly checking the rates on offer from each mortgage lender, to keep UK consumers up to date with the latest changes.

How much do you need for a mortgage in UK?

It can be hard to figure out how much money you need to earn to get certain types of mortgage -especially if you are a first time buyer or it's been years since you applied for one.

A lot of UK lenders will want you to earn at least £20,000 per year to qualify for a mortgage, but this isn't a general rule. People with lower incomes may still be able to get a mortgage based on:

  • Your credit score/credit history
  • The mortgage lender that you apply to
  • The type of mortgage that you need
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How much do I need to earn to get a mortgage? - MPO

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