There could still be a ‘choppy period’ ahead for mortgage holders despite inflation in Britain falling to a 16-month low, industry experts warn.
Inflation has dropped to 7.9% in the year to June, according to the Office for National Statistics (ONS).
It also fell from 8.7% in May – a better result than many economists were predicting.
ONS says falling fuel prices were a factor, while food prices are rising less quickly than expected.
Meanwhile core inflation – the rate of price rises that excludes food and fuel – also fell by 0.2% to 6.9%.
While many welcomed the news, there was still concern that it may not spell the end for rate rises.
LiveMore managing director of capital markets and finance Simon Webb, says that while inflation is ‘plodding downwards’ it’s ‘a painfully slow process’.
He adds: “A slightly more positive statistic is the 0.2% fall in core inflation to 6.9%, a welcome turnaround from successive rises over the previous three months.
“Whether this is enough to stall the Monetary Policy Committee decision to raise base rate yet again is debateable.”
MorganAsh managing director Andrew Gething, says: “The hope is this news may allow mortgage lenders to reduce rates and budge even slightly on their fixed-rate pricing.
“This will be most welcome among those households set to remortgage in the near future.
“But beyond the lower headline inflation achieving the Bank of England’s forecast of 7.9%, we cannot escape the fact that it still remains well above its overall target of 2%.
“The aim of increasing bank rates is to curb spending. For mortgages holders, this will be most painful for around one million on variable rates and less of an issue for those still on fixed rates.”
Phoebus Software chief revenue officer Adam Oldfield describes the news as ‘encouraging’.
However, he says we may still see further increase to the Bank of England base rate due to underlying inflation remaining high.
“Considering that Consumer Duty is just around the corner lenders and brokers will need to be doing everything possible for those clients that may be starting to struggle,” he adds.
“Even though inflation has come down we are still dealing with rising costs and the highest mortgage rates in decades.”
Mortgage Advice Bureau deputy chief executive Ben Thompson says that although inflation has slowed more than expected, core inflation is still proving ‘sticky’.
He adds: “Lenders have held steady on rates over the past few days, adopting a ‘wait and see‘ approach.
“However, the core inflation reading is likely to signal the start of another choppy period, as lenders predict the Bank of England’s next move – a toss-up between a quarter or half point rise.
“The big question for mortgage holders is what they should do next, and with so much speculation on where we are on rates, it’s a hard one to answer.”
He stressed it was important for people within six months of their deal ending to ‘act early’ and speak to their broker to find out what their options are.
