Mortgage rates fall for first time in two months

Mortgage rates have fallen for the first time in two months following better-than-expected inflation figures.

Rates on both two and five-year fixed deals have dropped on hopes that the Bank of England may not raise interest rates as much as previously thought.

The rate of inflation slowed to 7.9% in the 12 months to June.

Months of increasing borrowing costs have put pressure on mortgage holders who are forced to renew deals at much higher monthly payment rates.

The average two-year fixed residential mortgage rate dipped to 6.79% on Thursday from 6.81%, according to financial information service Moneyfacts

Meanwhile, the average five-year fixed residential mortgage rate edged down to 6.31% from 6.33%.

The Bank of England has raised interest rates 13 times since December 2021 in an effort to slow soaring price rises, otherwise known as inflation.

Figures on Wednesday showed that inflation had fallen from 8.7% in the year to May to its lowest level in more than a year.

But the UK's inflation rate remains almost four times higher than the Bank's official 2% target.

• Why is UK inflation so high?

However, the Bank is not expected to raise interest rates - currently at 5% - as steeply as it did during its last meeting when it lifted them by half a percentage point from 4.5%.

When the Bank next meets on 3 August to decide on interest rates, analysts now predict a quarter percentage point rise to 5.25%.

Although some economists believe stubbornly high inflation in the UK may mean rates will rise further.

Capital Economics said that rates will peak at 5.5% this year. Without the drop in inflation seen in June, that figure would have been much higher, around 6%.

How have you been affected by the changes in mortgage rates? Share your experiences.

Although average rates ticked lower, some mortgage lenders have continued to raise costs for borrowers.

Hannah Bashford, mortgage broker and director of Model Financial Solutions, said she did not think there would be a meaningful drop in mortgage rates until later in the year.

She added: "A rate drop will be largely dependent on whether energy prices don't push up inflation again in the autumn."

Last month, a series of measures were agreed with mortgage lenders aimed at supporting people who are struggling with their repayments.

In June, banks met the chancellor and agreed to a minimum 12-month period before a home is repossessed.

Borrowers will also be able to make a temporary change to their mortgage terms, for example by switching to an interest-only deal, then will be able to return to their original deal within six months without impacting their credit scores.

What happens if I miss a mortgage payment?

• A shortfall equivalent to two or more months' repayments means you are officially in arrears

• Your lender must then treat you fairly by considering any requests about changing how you pay, perhaps with lower repayments for a short period

• Any arrangement you come to will be reflected on your credit file - affecting your ability to borrow money in the future

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