Could mortgage rates go below 4% this year?

Could mortgage rates go below 4% this year?  

There is finally light at the end of the tunnel for beleaguered homeowners, as a dramatic drop in inflation announced last week could spell the end of mortgage rate misery.

Annual inflation fell to 4.6 per cent in October from 6.7 per cent in September, surprising investors and the Bank of England.

Some 7.5 million households are expected to have been affected by the rate rises. But with inflation slowing, have we seen the worst of high rates and could mortgage costs fall back? We investigate.

The drop in inflation could mark a watershed in the battle against the spiralling cost of living, which saw inflation peak at 11.1 per cent last autumn. With inflation forecast to continue to fall this removes the main reason driving the Bank of England’s base rate hikes.

The base rate could be cut as soon as May and fall to 4.25 per cent by the end of next year, analysts at Morgan Stanley forecast. 

Earlier this month, the Bank of England’s chief economist Huw Pill had predicted the first cut would be in August. The Bank ended its run of rises in September, holding rates at 5.25 per cent.

Lenders reacted to last week’s news with a flurry of cuts. Banks have reduced mortgage rates over the past two months, but the pace has increased in recent days.

On Thursday, Barclays reduced the cost of its two-year fixed-rate deals for homeowners by 0.3 of a percentage point. 

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