Experts forecast that the Bank of England is likely to delay any interest rate cuts which could potentially ease mortgage rates until after the General Election on July 4.
The average UK house price saw a 1.1% rise in the year to April, picking up speed from a 0.9% annual growth in the 12 months to March, according to data from the Office for National Statistics (ONS).
This marked the second consecutive month of annual price increases, following eight months of yearly declines. These figures were unveiled alongside data from the ONS that showed Consumer Prices Index (CPI) inflation decelerated to 2% in May, down from 2.3% in April.
Despite inflation returning to target, experts forecast that the Bank of England is likely to delay any interest rate cuts which could potentially ease mortgage rates until after the General Election on July 4. The Bank’s next decision on interest rates is due this Thursday.
The last time CPI was recorded at 2% was in July 2021, before it soared to a 40-year high of 11.1% in October 2022. ONS figures released on Wednesday revealed that house prices increased by 0.6% in England, 0.4% in Wales and by a significant 4.5% in Scotland in the 12 months to April.
In Northern Ireland, property values saw a 4.0% annual increase in the first quarter of the year. Average UK private rents rose by 8.7% in the 12 months to May, the ONS reported, slowing from an 8.9% annual increase in April and below a record high annual rise of 9.2% in March.
In May, the average private rent in Britain stood at £1,262 per month, with the highest being in Kensington and Chelsea in London (£3,397), and the lowest in Dumfries and Galloway in Scotland (£480). Matt Smith from Rightmove stated: “Hopefully today’s inflation drop is the first step on the journey towards lower mortgage rates in the second half of the year.”
“Market expectations are still that the first Bank of England rate cut is more likely to be later in the summer rather than tomorrow, but at least today’s news will keep us on course rather than throwing a curveball.”
Meanwhile, David Hollingworth from L&C Mortgages said: “The fall in the rate of inflation to the Bank of England target rate of 2% is positive news. This moves a step closer to the point when the Bank of England could feel confident enough that inflation is coming under control, opening the door to a cut to base rate.”
“Today’s figures are in line with market expectation, and few are anticipating that the Bank will feel the timing is right for an interest rate cut when the MPC (Monetary Policy Committee) announces its decision tomorrow. It’s been a choppy backdrop for mortgage rates in recent months with fixed rates edging higher in May as markets anticipated that base rate would remain higher for longer. Market rates seem to have eased back again a touch in recent weeks to unwind some of the hikes. Today’s news is unlikely to cause a ripple as far as mortgage outlays go and doesn’t seem sufficient to presage any unexpected move to base rate.”
Mortgage borrowers eager for a reduction in interest rates might have to hang on a bit longer than they’d hoped at the start of the year. Andrew Montlake, managing director of Coreco mortgage brokers, expressed optimism: “After many long months there is finally something to cheer about as inflation has hit its long-term target of 2%, which will be a shot in the arm for the economy.”
He also suggested that this could lead to more competitive mortgage deals: “Whilst we should see a resulting fall in swap rates which should give lenders room to release some ‘summer sizzler’ products with lower rates, one swallow does not make a summer.”
Jonathan Hopper, chief executive of Garrington Property Finders, reflected on recent market trends: “Today’s figures capture the afterglow of the surge in activity seen at the start of the year. Many of the sales completed in April stem from deals struck in January and February, when buyers were out in force and the market was on a roll.”
Nicky Stevenson, managing director at Fine & Country, predicted an upturn in the property market: “As we expect the economic landscape to continue improving, it’s likely that we will see a spike in activity as the year progresses, especially with an interest rate cut from the Bank of England on the horizon.”
Jeremy Leaf, a north London estate agent, said: “Today’s announcement of a fall in inflation growth and previous drops appear to have already been factored into the expectations of many home buyers.”
