CHEAPER mortgage rates that homeowners have been enjoying could soon disappear, brokers are warning.
After weeks of more favourable rates for homeowners, experts now say we may see an end to sub-4% mortgage deals due to rising inflation.
Government figures revealed inflation had risen to 3% in the 12 months to January, up 0.5% from December.
Analysts had been expecting a rise to about 2.8%, which is still well above the Bank of England‘s target of 2%.
Higher inflation can spell bad news for mortgage holders as it can encourage the Bank of England to hold interest rates.
In turn, that can mean lenders pull their lowest priced deals.
Fixed mortgage prices follow swap rates, which are based on market predictions for where interest rates may go in the months ahead.
The Bank recently cut its base rate from 4.75% to 4.5% and it is expected to cut rates a further three times this year.
But Rachel Springall, finance expert at Moneyfacts, said the market is “unpredictable” right now and rising inflation and economic uncertainty could limit cuts to the base rate.
“Inflation is expected to rise in the coming months, which in turn makes it less likely for more base rate cuts,” she said.
“This will frustrate the millions of borrowers looking to remortgage in 2025 who plan to secure a fixed rate mortgage for peace of mind.”
David Hollingworth, associate director at L&C Mortgages, said better-than-expected data last month had eased mortgage rates down.
Lenders have been competing aggressively on their rates, with some offering mortgage deals below 4%.
For example, Santander is offering a two-year fixed rate of 3.99% for those looking to remortgage.
Danske Bank has a two-year fix at 3.97% for home movers.
The jump in inflation will likely have the effect of tipping rates upwards again.
Mr Hollingworth said: “Today’s data could put some serious drag on any further momentum building for fixed rate cuts.
“With margins so tight for lenders, it could at best see fixed rates holding or at worst apply some upward pressure.”
He warned the lowest fixed-rate deals could therefore be “short-lived”.
“There’s not been a mad rush from lenders to join those leading sub 4% rates and if today’s news causes the cost of funds to edge up there’s every chance that the current crop could soon be snapped up,” he told The Sun.
“That could see replacement rates bounce back over the 4% marker, even though hikes are not likely to be big.”
So far, lenders have not yet reacted by pulling deals – which means homeowners and buyers may want to act fast.
Harps Garcha, director at Brooklyns Financial, said those looking to secure a new fixed rate should “consider acting sooner rather than later, before lenders adjust rates in response to the shifting market”.
Meanwhile Stephen Perkins, managing director at Yellow Brick Mortgages, said it is likely some of the best-priced deals currently available will be “pulled shortly”.