CPI inflation falls to 3.9%: what does this mean for mortgages?

Today, the Office for National Statistics has announced that Consumer Price Index (CPI) inflation fell to 3.9% in November. Chris Sykes, Technical Director at Private Finance, explains how this new data will likely impact the mortgage market in 2024 and what this will mean for mortgage holders in the UK.

An extra touch of positivity as we approach the New Year.

UK inflation fell more sharply than anticipated to 3.9% in November, down from 4.6% in October. Based on a poll by Reuters, economists expected inflation to drop to 4.4%.

There were positive shifts in SONIA (Sterling Overnight Index Average) swap rates – which underpin fixed-rate mortgage pricing – and the FTSE 100 today, following the better-than-expected inflation data, reflecting new hopes for interest rate reductions in 2024. The Bank of England has been carefully managing expectations for the base rate over the next year. However, today’s inflation figures may support a possible readjustment over these projections.

One of the key variables impacting the direction of the base rate was the government reaching their 2% inflation target and it looks like this could be reached sooner than expected amid a drop in the price of petrol and food prices. On the other hand, this drop in petrol prices may be short-lived as recent developments in oil shipping could disrupt prices. Stability in inflation will need to be evidenced over a long period of time before the government is satisfied to ease monetary policy tightening.

Inflation and mortgage rates

In the final interest rate decision of the year, the Bank of England opted to maintain the base rate at 5.25% on the 14th of December, aligning with analysts’ expectations. This marked the third consecutive hold after 14 increases since the end of 2021.

The mortgage market has been responding well to this stability. Notably, fixed mortgage rates have been edging down in recent months as we come to the end of 2023. This reflects the competitive nature of lenders as they attempt to reach lending targets. In addition, lenders have had more room for adjustment following positive inflation news and reductions in SONIA swaps, in particular 5-year swaps.

In light of today’s inflation figures, it could be possible that we see sub-4% 5-year fixed rates in the near future. This would mark an incredible turnaround for the market as mortgage rates become more digestible for homeowners. Further reductions in mortgage rates, especially across larger loan-to-values, could help restore confidence and demand in the purchase market. Small rises in house prices may attract people back to the market who were worried about negative equity and hope to receive the benefits of house price appreciation in the future.

The popularity of tracker rate mortgages could rise with reductions in the base rate, providing borrowers with both flexibility and the chance to ride the downward trend in interest rates.

You can read more about our mortgage market predictions for 2024 here.

Refinancing in 2024

While mortgage rates have been falling in recent months, average rates are currently higher than most people have been used to. It is likely that when your current deal expires, your new mortgage rate will be higher.

It is important to get in touch with a mortgage consultant at least six months before your current deal ends. This is to ensure that you have enough time to arrange a new mortgage and not risk closing any doors by leaving this too late. Staying with your current lender could mean being put on a high standard variable rate (SVR).

Your Private Finance consultant will help you consider your options before your current deal expires and find a new mortgage early. They will also help you compare thousands of remortgage deals across the whole of the market with independent trusted advice.

If you would like to discuss your mortgage options with a qualified professional, you can speak to one of our mortgage advisors on 0800 980 8777, by emailing us at info@privatefinance.co.uk

Please remember that your home may be repossessed if you do not keep up repayments on your mortgage.

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