Consumer price inflation was expected to rise to 3%, so holding steady may offer some hope for mortgage borrowers.
With fuel costs rising at the time due to the conflict in the Middle East, this indicates a decline in underlying price pressures.
This comes after the announcement of the peace agreement between the United States and Iran, which led to a decline in oil prices.
But if you have a mortgage, or are about to get a mortgage, the question is how will this affect interest rates and mortgage rates?
David Hollingsworth, Associate Director at Real estate loans The Fed said today’s inflation news should come as a boost to mortgage borrowers who would have accepted a small rise in inflation but fear a bigger jump.
He added: “Today’s figures should help reinforce the majority view that the Bank of England will hold its key interest rate tomorrow, although Monetary Policy Committee members have differing views on whether and when interest rates need to rise.
“With no disruption to market expectations for another suspension, there should be no negative impact on the improving picture for mortgage interest rates.”
In fact, it was believed that there should be some easing on fixed rate mortgages, which are not directly affected by the Bank of England base rate.
He added: “Markets have taken into account potential increases in interest rates since the conflict began, which has led to higher mortgage rates. However, fixed mortgage interest rates have declined since then.”
“The announcement of the peace agreement has seen swap rates decline, and today’s figures should help continue that.
“Mortgage lenders were quick to pass on these benefits to borrowers. Although the reductions were relatively small and frequent, they helped lower interest rates for borrowers.”
Will there be further interest rate cuts in the future?
Following the US-Iran peace agreement, the number of interest rate increases expected for the remainder of 2026 decreased from two to one. But even though inflation now appears more stable, is a rate hike now unlikely?
Susannah Streeter, chief investment strategist at Wealth Club, said today’s inflation data reinforced expectations that the Bank of England will press pause tomorrow and keep interest rates at 3.75%.
But he added: “This is likely to mean that policymakers will postpone raising interest rates until later in the year.
“This will give more time to assess whether higher energy costs will be passed on, or whether this is a temporary external force that will subside more quickly. There is even a small but growing chance that rate hikes will be taken off the table.”
What should borrowers do next?
As always, the advice is to stick to your own plans rather than trying to guess the markets.
While the inflation data is positive, some commentators fear there could be further rise in consumer prices ahead, with Sarah Coles, head of personal finance at AJ Bell, warning that things may get worse before they get better.
David Hollingsworth said any mortgage rate cuts were likely to be “gentle”.
“While interest rates are unlikely to fall, it at least gives mortgage borrowers a more positive outlook than they did just a few weeks ago.”
He continued: “Those who are nearing the end of a deal soon may wonder whether they should hold off on locking in a new price.
“It still makes sense to shop for price stability, as recent months have shown how quickly things can change.
“Getting the best deal every now and then by closely monitoring market movement will protect against any further volatility, but will still give the opportunity to take advantage of any improvement by switching to a better deal before expiration.”
