Borrowers are set to benefit from growing expectations of a December base rate cut but savers may struggle to keep pace with inflation as returns soften, according to new analysis from Moneyfactscompare.co.uk.
A sharp fall in inflation – down from 3.8% in September to 3.6% in October – has helped drive a wave of mortgage repricing.
Lenders have cut fixed-rate deals across the market, pushing the Moneyfacts Average Mortgage Rate below 5% for the first time since summer. The average two-year fix has slipped from 4.98% to 4.88%, while the typical five-year fix has edged down from 5.02% to 4.93%.
With GDP growth slowing and unemployment rising, markets now see a base rate cut next month as increasingly plausible.
WELCOME SHIFT
Caitlyn Eastell, spokesperson at Moneyfactscompare.co.uk, says that the shift would be welcome news for homeowners: “The Moneyfacts Average Mortgage Rate has fallen below 5%, which will come as a relief to many borrowers.
“Plenty of lenders have dropped their fixed-rate deals in recent weeks and by more significant margins, with more possibly on the way.
“A base rate cut in December is looking increasingly likely… but anything unexpected in the Autumn Budget could derail these chances.”
LOSING OUT
For savers, however, the picture is tightening. The Moneyfacts Average Savings Rate sits at 3.40% – below inflation – meaning many are losing money in real terms unless they shop around.
There are currently 1,224 savings deals that beat CPI, down from 1,629 in November last year. With interest rates trending downward and competition cooling, particularly in the cash ISA market, the number of inflation-beating accounts is expected to fall.
MORE COMPETITION
Mary-Lou Press, President of NAEA Propertymark (National Association of Estate Agents), says: “Falling inflation and the growing likelihood of a base rate cut will be welcome news for many households, particularly those looking to secure a new mortgage deal.
“After a prolonged period of higher rates, we are beginning to see greater competition among lenders, with average fixed rates edging downward.
“This provides a degree of stability and confidence for some buyers and homeowners who have been waiting for calmer conditions to move or remortgage.”
MIXED PICTURE
But she adds: “However, the broader economic picture remains mixed. Slowing GDP growth and rising unemployment underline the fragile nature of the recovery, and any unexpected measures in the Autumn Budget could still influence the direction of travel for mortgage pricing.”
