MILLIONS of UK homeowners could soon enjoy cheaper mortgage bills as interest rates are tipped to be cut to 3%.
Inflation dropped to its lowest point since last March in January, official figures showed this week.
This makes it more likely that the Bank of England (BoE) will cut rates as early as March, when its policymakers next meet.
A rates cut would bring a welcome boost for homeowners and first-time buyers.
When interest rates fall, it becomes cheaper to borrow money and brings down mortgage rates.
Economists now predict that interest rates, which are currently at 3.75%, could soon fall to 3%.
Katharine Neiss, chief European economist at investment manager PGIM, said she expects rates to be cut in March, April and June – which would take them to 3% by the summer.
However, she added that a hike to the minimum wage expected in April could stop the Bank from “aggressively” cutting rates.
Yael Selfin, KPMG chief economist, added: “Given the favourable inflation outlook, the Bank is expected to cut interest rates three times this year, leaving interest rates at 3% by the end of 2026.”
Consumer Price Index (CPI) inflation, which measures how fast the cost of goods and services is rising, rose by 3% in the 12 months to January, the Office for National Statistics (ONS) said yesterday.
This was a sharp fall from 3.4% in the 12 months to December.
The ONS said the drop was driven by cheaper petrol prices, food and airfares.
How to get the best deal on your mortgage
IF you’re looking for a traditional type of mortgage, getting the best rates depends entirely on what’s available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
