Impact of US Inflation on UK Mortgage Rates: What to Expect

Recent economic data from the US has sparked uncertainty in London markets, raising questions about the trajectory of central bank interest rates. Amidst this backdrop, mortgage rates in the UK have been under scrutiny, with trends showing a shift in recent months.

At the beginning of the year, home loan rates experienced a significant decline due to market competition and positive economic signals. However, this trend tapered off in February and March, with lenders facing narrower margins, leading to a gradual uptick in average rates.

Currently, the average two and five-year fixed mortgage rates stand at 5.81% and 5.38% respectively, according to Moneyfacts. These rates are influenced by SONIA swap rates, which reflect lenders' expectations regarding future interest rate movements.

While two and five-year swap rates decreased in March following dovish signals from the US Federal Reserve and the Bank of England, they have since risen in April. This uptick came after traders adjusted their expectations for the timing of the Federal Reserve's rate cuts, particularly in response to hotter-than-expected inflation data.

Experts suggest that the Bank of England's response to inflation could impact mortgage rates in the UK. Chris Sykes, technical director at Private Finance, highlights the potential for fixed-rate pricing to increase if monetary policy decisions shift. Similarly, Justin Moy, managing director at EHF Mortgages, emphasizes the interconnectedness of global monetary policies, indicating that UK rate cuts may align with actions taken by the US Federal Reserve.

Source: City A.M.