Interactive Investor

Mortgage rates fall on inflation data

20th July 2023 11:40

by Myron Jobson from interactive investor

Share on

But UK property market remains turbulent, says interactive investor.

woman sofa furniture diy home improvement

New figures from Moneyfacts reveal a fall in the average rates for two and five-year fixed rate mortgages following the lower-than-expected fall in inflation to 7.9% in June from 8.7% the month before.

  • The average two-year fixed residential mortgage rate today is 6.79%. This is down from an average rate of 6.81% on the previous working day.
  • The average five-year fixed residential mortgage rate today is 6.31%. This is down from an average rate of 6.33% on the previous working day.
  • There are currently 4,495 residential mortgage products available. This is up from a total of 4,316 on the previous working day.

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The better-than-expected inflation data for June has brought about a palpable sense of optimism in the mortgage marketplace following a brutal couple of months during which the spike in mortgage rates, to levels not seen since the financial crash, laid waste to housing affordability.

  1. Learn more: Low Cost Investment Platform | Interactive investor Offers | General Investing with ii

“There has been a modest reprieve in mortgage rates, with the average rates on two and five-year fixed rate deals ticking lower by 0.03 percentage points to 6.79% and 6.31% respectively, and the number of residential mortgage products available increasing by 179 to 4,495 in the space of 24 hours.

“The decrease is modest, amounting to savings of around £3 a month based on a 75% loan-to-value fixed rate mortgage with a 30-year loan term on a £300,000 home. But it is a sign that mortgage rates are heading in the right direction.

“The expectation of lower-than-feared interest rate hikes to tackle inflation is enough to drag down the cost of fixed-rate deals. This is because the metrics used to price fixed-rate deals gives lenders the green light to lower the cost of fixed-rate mortgages in anticipation of a future where borrowing costs will be reduced. The burning question is, how low will mortgage rates go and how fast will they fall?

“But there is no such reprieve for the 2.2 million homeowners on variable rate mortgages, which are tied to the Bank of England’s base rate. They will continue to feel the full brunt of the expected increase in interest rates as part of the UK’s central bank’s efforts to drag inflation closer to its 2% target. They are likely to face higher costs for some time to come.

“While the positive news on the mortgage front is welcome, the property market remains in a state of flux. If a significant fall in mortgage cost occurs, it could keep house prices elevated. Increased mortgage affordability could lead to a higher demand for homes, which can put upward pressure on house prices.

“For those seeking to buy or remortgage, it is worth consulting a mortgage adviser to explore your options.”

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Get more news and expert articles direct to your inbox