This week has been very positive in the finance markets following the latest inflation figures and the decision that the Bank of England took with the base rate.
On Wednesday, the Office of National Statistics released the inflation figures for the UK in the year to August. It was widely discussed by economists, including the Chancellor himself, that we would see a slight increase in inflation. However, they were wrong. Inflation fell marginally by 0.1% to 6.7%, this is the third consecutive month that the figure has fallen. This unexpected news comes largely due to the cost of food prices slowing further than many had expected, this is welcome news to many with the cost of everyday items increasing at a slower rate than they were a year ago. Whilst inflation is still a lot higher than the Bank of England’s target of 2%, the fact that the rate of inflation has fallen for three consecutive months has been well received in the financial markets.
This week also saw the Bank of England meet again to vote on what to do with the base rate, the nine committee members voted 5:4 in favour of keeping the base rate at 5.25%. Many market experts were factoring in a 15th consecutive increase in the base rate to 5.5%, however following the United States not increasing their borrowing rate and the inflationary figured released the day before, the committee voted not to increase the base rate during their meeting. Again, this news has had a positive affect to financial markets and instilling more confidence in the UK economy. The rate at which lenders trade money between them at has fallen by nearly 0.7% for 2-years and 0.6% for 5-years (at the time of writing) compared to what they were a month ago.
What does all this mean for me and my mortgage?
The more the UK’s inflationary figure falls closer to the Bank of England’s target of 2%, the less pressure the Bank’s committee have to increase the base rate further and they can start to reduce it the closer that it gets to their target. Reducing inflation means that the previous increases in the base rate will be having the desired effect on peoples’ finances that they are intended to have. This breeds more confidence in the UK economy, more confidence that there is in the economy means lenders can buy money at cheaper rates. In turn, these cheaper rates can then be passed onto the price of fixed rate mortgage products.
A large number of lenders starting to reduce their fixed rate products this week, Nationwide and NatWest have both reduced rates by up to 0.31%, TSB have also reduced some of their fixed rates by to 0.25% as well. The fact that rates are starting to reduce is great news for the mortgage market, however securing a new product early is particularly still very important in what is still an unstable market. The vast majority of lenders will allow you to change the rate you have secured if rates fall between now and your new product coming into effect, if rates increase and you haven’t already secured a new product then you would have to select one of the higher rates.
We believe that it’s important to seek professional advice for your mortgage, this ensures that you fully understand all the options available to you. All mortgages are based on your circumstances and failure to maintain your payments could result in your home being repossessed.