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Inflation Cools and Signs Mortgage Rates Could Fall: What Borrowers Need to Know

In a welcome turn of events, inflation rates have finally begun to cool, leading to speculation that mortgage rates may begin to follow. This news comes as a relief to borrowers who have been grappling with rising rates for quite some time. The recent inflation data, showing a significant drop from the previous month, has resulted in a shift in market expectations for future mortgage rate hikes. In this article, we will delve into the implications of this development and provide insights for borrowers navigating the current mortgage landscape.

The Impact of Inflation on Mortgage Rates

Inflation is a key factor influencing interest rates, including mortgage rates. When inflation rises, central banks often respond by increasing interest rates to curb excessive spending and stabilise the economy. Conversely, when inflation cools, as is the case now, it creates room for interest rates to potentially decrease. The recent drop in inflation, from 8.7% to 7.9%, has prompted a reassessment of interest rate forecasts and mortgage pricing.

Better-Than-Expected Inflation Figures

The unexpected drop in inflation, below market expectations, has caught many by surprise. Consumer price inflation fell by 0.8 percentage points in June, marking the largest decrease since July of the previous year. Economists had anticipated a more modest decline, with market expectations set at 8.2%. The lower-than-expected figure has led to a reevaluation of future interest rate hikes and mortgage rate projections.

Market Response and Adjusted Rate Forecasts

Following the release of the inflation data, there has been a notable market response. Two-year swap rates, a leading indicator for mortgage rates, fell by 0.3 percentage points. This shift in rates indicates that the market is now pricing in a lower peak Bank Rate, with estimates ranging between 5.75% and 6%. This is a significant adjustment from previous predictions, which had anticipated a peak of 6.75%.

Implications for Borrowers

For borrowers, the potential decrease in mortgage rates brings a glimmer of hope. Those whose fixed-rate deals are due to end may see some relief, as rates are expected to stabilise or even decline in the coming months. However, it is important to note that the impact on individual mortgage payments may vary based on the specific terms of each loan.

Choosing the Right Mortgage Strategy

Given the evolving mortgage landscape, it is crucial for borrowers to make informed decisions regarding their mortgage strategy. While fixed-rate mortgages have been popular in recent years, it may be worth considering other options in light of the changing interest rate environment. Mortgage advisers recommend carefully evaluating the macroeconomic factors and potential future rate movements before committing to a specific mortgage product.

The Role of the Bank of England

The Bank of England plays a vital role in determining interest rates, including the Bank Rate, which influences mortgage rates. Market participants are eagerly awaiting the Bank’s next meeting on August 3rd to gain insights into their stance on interest rates. Any indications of a more hawkish approach may imply potential rate increases, while dovish comments could signal a further decline in mortgage rates.

Market Volatility and Stabilisation

Despite the newfound optimism surrounding the potential decrease in mortgage rates, experts caution that market volatility persists. Forecasting rate movements accurately has proven challenging in recent months and it may take several more accurate forecasts before rates begin to decline significantly. However, the current data provides some grounds for lenders to stabilise their rates, offering borrowers a more predictable mortgage environment.

The Impact on the Property Market

The property market has experienced a slowdown in recent months, primarily due to rising mortgage rates. However, the potential stabilisation and decrease in rates could provide a much-needed boost to the market. While it is unlikely to result in a collapse in house prices, it may alleviate some of the downward pressure and create a more favorable environment for buyers.

The Importance of Seeking Professional Advice

Amidst the evolving mortgage landscape, it is essential for borrowers to seek professional advice tailored to their individual circumstances. Mortgage brokers can provide valuable insights into market trends, mortgage options and potential rate movements. By understanding the macroeconomic factors and considering their long-term goals, borrowers can make informed decisions that align with their financial needs.


The recent drop in inflation has sparked hopes of a potential decrease in mortgage rates, offering relief to borrowers. While the full impact of this development remains to be seen, it is essential for borrowers to stay informed, seek professional advice and carefully consider their mortgage strategy. By navigating the changing interest rate environment with prudence, borrowers can position themselves for a more favorable mortgage experience.

Disclaimer: The information provided in this article is for informational purposes only and should not be considered financial advice. Borrowers are encouraged to consult with mortgage professionals and financial advisors for personalised guidance.