August Rate Cut Uncertainty: Mortgage Insights

The chances of an Bank Base Rate cut in August decreased after services inflation slowed down the UK's progress in battling inflation last month. Specifically, services inflation, which includes categories such as hospitality, culture, and housing, remained higher than expected. New official figures showed that UK's inflation held steady at 2% last month, aligning with the target rate set by the Government and the Bank of England for the second consecutive month.

What does this mean for mortgages?

The Bank of England uses its Bank Base Rate to help control inflation. The current rate is 5.25%, and it has been held at this level since August of last year. The fact that the inflation rate has hit its target for two consecutive months is good news for Bank of England policymakers.

There is still optimism about a potential Bank Base Rate cut in August, but some economists, like those at HSBC, have changed their forecasts to predict a reduction in November.

The Bank Base Rate plays a part in Mortgage Lender Funding. A rate reduction has been expected for awhile as such is "priced in". We don't expect significant changes on rates or fees on shorter fixes apart from lenders adjusting profit margins.

Longer-term fixed-rate mortgages may experience greater price volatility as more economic data becomes available, allowing forecasters to predict future Bank Base Rate changes.

I need lower mortgage payments now!

The Bank of England's main focus is on inflation, but your mortgage advisers will focus on your affordability and ability to make payments on your mortgage. If you are struggling, talk to your adviser about options, such as lowering your monthly mortgage payments.

Expert Views

Chris Barry at Thomas Legal says

The BoE admitted they were too late raising rates after a decade of historic lows but sadly didn’t learn from their mistake. Headline inflation continues to sit at their 2% target but they once again risk being late to adjusting rates to aid the economy. I’ve given up looking at the data and have instead submitted to the inevitable fact that the base rate will be reduced as soon as the Fed make the first move.

Kate Eatenton at Lifetime Wealth Management

Let’s hope this data delivers a rate cut in August. We desperately need something to bring some positivity back into the UK property market, and borrowers need it urgently. Unfortunately, the Bank of England may once again play it safe.

Sources

ONS: CPI for June 2024