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Major Lenders Cut Fixed Mortgage Rates, Signalling Possible End to Interest Rate Increases

Landlords and homeowners across the UK received positive news as several of the country’s largest lenders announced they would be cutting rates on their fixed mortgage offerings this week. This move reflects growing anticipation that the Bank of England may soon conclude its current cycle of interest rate hikes.

Nationwide led the way by reducing rates up to 0.35% on Friday, following HSBC’s announcement of a cut of an average of 0.15% earlier in the week.

While most economists predict the Bank will raise the base rate by 0.25% on Thursday, making it the 14th consecutive increase, the size of the hike would be smaller than the unexpected 0.5% jump in June. This shift has led experts to believe that the latest UK inflation data may have alleviated some of the pressure on the central bank.

According to the Office for National Statistics (ONS), Consumer Prices Index (CPI) inflation dropped to 7.9% in June from 8.7% in May, marking the lowest rate since March 2022. This decline indicates that rates might not need to ascend as sharply as previously thought, as the Bank aims to reduce inflation to its target of 2%.

This situation in the UK aligns with international trends, as both the European Central Bank (ECB) and the US’s Federal Reserve raised their respective interest rates to two-decade highs last week. The central banks each opted for a 0.25% increase as part of a global endeavour to curb runaway inflation.

In the UK, a quarter-point increase this week would take interest rates to 5.25%, with potentially one more rate hike on the horizon.

Andrew Goodwin, chief UK economist for Oxford Economics, offered insight into the coming months: “Beyond this month (August), we’re sticking with our prediction of another increase in rates in September, at which point the present rate rise cycle should come to an end.”

This sentiment was echoed by Paul Dales, chief UK economist at consultancy Capital Economics: “While there is probably enough inflationary pressure to prompt another hike at the following meeting in September, to 5.5%, we think that a mild recession and an easing in both wage growth and core inflation will prevent further hikes.”

This potential halting of interest rate increases is fostering greater optimism regarding housing prices in the UK.

Riz Malik, director of mortgage brokers R3 Mortgages, commented on the current market situation: “There is probably more life on Mars than there is in the UK housing market at the moment. But if interest rates have almost hit their highest point, things could start to improve.”

He added: “This week, some lenders have started to lower their mortgage rates marginally due to favourable market conditions. So, even if the base rate goes up next week, if the expectation is that interest rates won’t go much higher, we could start to see an increase in property transactions if the cost of borrowing improves.”

The reductions in mortgage rates by major lenders signify a potential thaw in what has been a tight lending environment, possibly opening doors to increased activity in the housing market and providing relief to both homeowners and landlords.