Brokers braced for more rate cuts following 0% inflation landmark

30 March 2015 | By Paul Thomas

Brokers are bracing themselves for further cuts to mortgage rates as zero inflation keeps a lid on fixed-rate pricing.

Early last week, the Office for National Statistics reported that inflation had hit a record low – 0 per cent.

Brokers predict a fall in swap rates, which have fallen significantly since the beginning of March, as a result of the dip in inflation, which also means base rate is likely to stay lower for longer. In fact, Bank of England chief economist Andy Haldane has said a cut to base rate may be needed if low inflation persists.

Since 1 March, two-, five- and 10-year swap rates have all fallen by around 20 basis points and they have edged down slightly since the inflation announcement. This has led some lenders to reduce their fixed rates, including Halifax, Accord and Platform, while HSBC has introduced a new 2.19 per cent five-year fix.

Brokers believe falling swaps and hints from the Bank of England that rates are not set to rise in the near future will keep a lid on fixed-rate pricing or even lead to lenders cutting rates further.

Coreco director Andrew Montlake says he does not foresee mortgage rates rising in the current environment.

He adds: “For the mortgage market, this could mean we see a fall in the costs of fixed rates once more as swap rates continue to edge down. It will be interesting to see if lenders do want to push the boundaries of fixed-rate pricing to the lowest levels we saw a few weeks back or if they are happy with the current pricing levels.”

London & Country associate director of communications David Hollingworth says: “People are starting to talk about base rate going even lower. That and zero inflation have fed through into swaps, so that could arrest any increases in fixed rates.

“Already one or two lenders have sharpened up their rates.”