LONDON (Reuters) – A key British mortgage rate fell on Thursday for the first time in nearly two months, coming off the previous day’s 15-year high as concerns about the outlook for inflation and Bank of England interest rates eased.
The average two-year fixed residential mortgage rate – the most common form of home finance – fell to 6.79%, its first drop since May 27, from 6.81% on Wednesday, figures from financial data provider Moneyfacts showed.
Last month, the BoE raised its key interest rate to 5% from 4.5% following faster-than-expected inflation and wage growth, and investors subsequently bet that the BoE might raise rates as high as 6.5%.
Those concerns in turn pushed two-year fixed-rate mortgages above the peak they hit last October, when then Prime Minister Liz Truss’ budget plans caused turmoil in Britain’s bond market.
The rise in borrowing costs has weakened the country’s housing market, adding to drags on the broader economy.
However, a lower-than-expected consumer price inflation reading on Wednesday caused BoE rate rise expectations to weaken and pushed down two-year swap rates which underpin mortgage borrowing costs.
Investors now think the chance of 5.75% or 6% peak in the BoE’s Bank Rate is split evenly.
The average interest rate for a mortgage with a five-year fixed-rate period also fell on Thursday, edging down to 6.31% from 6.33% on Wednesday, Moneyfacts said.
(Reporting by Suban Abdulla; Editing by William Schomberg)
