Slight fall in mortgage rates offers glimmer of hope to homebuyers

After a two-month climb, mortgage rates have eased slightly following a drop in inflation. While offering hope to homeowners and buyers, the 7.9% annual inflation rate remains well above the 2% target. Hints that the Bank of England might limit interest rate hikes contributed to the dip in average fixed mortgage rates, though significant relief isn't expected until later in the year.

Mortgage rates have dipped for the first time in two months following the June fall in the inflation rate. It may seem like a drop in the ocean in the current financial climate, but it does offer some hope to homeowners and potential buyers that the worst may be over. 

The annual rate of inflation slowed from 8.7% in the year to May down to 7.9% in the year to June. This prompted a decrease in average rates on both two and five-year fixed deals, based on hopes that the Bank of England may not raise interest rates as much as previously predicted. The average two-year fixed residential mortgage rate dipped to 6.79% from 6.81%, according to financial information service Moneyfacts. The average five-year fixed residential mortgage rate dropped to 6.31% from 6.33%. The falls brought some welcome relief from the regular increases we’ve seen both in inflation and mortgage rates over the last year. The inflation rate still remains almost four times higher than the Bank's official 2% target. However, while the bank is still expected to raise its base rate again, it’s hoped the dip in inflation will mean rises won’t be as steep as they might otherwise have been. 

Hannah Bashford, mortgage broker and director of Model Financial Solutions, told the BBC that she did not think there would be a meaningful drop in mortgage rates until later in the year. She said: "A rate drop will be largely dependent on whether energy prices don't push up inflation again in the autumn."

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