Fears inflation hike has killed mortgage price war | Personal Finance | Finance

Britain’s mortgage price war appears to be running out of steam as rising inflation forces lenders to hike home loan rates and scale back planned cuts.

Figures released by the Office for National Statistics (ONS) this week showed inflation jumped to 3.5% in April, up from 2.6% the previous month — the highest annual rate in over a year.

The news prompted investors to slash their forecasts for interest rate cuts this year, with markets now expecting just one more 0.25 percentage point cut in 2025.

The Bank of England has cut rates four times since last summer, from 5.25% to 4.25%. But predictions of further falls to as low as 3.75% have been blown off course by higher-than-expected inflation.

Mortgage providers have responded swiftly. Halifax has trimmed rates by up to 0.15% on selected two and three-year fixed products, but simultaneously increased rates by up to 0.11% on five-year fixes. Its buy-to-let arm, BM Solutions, made similar moves — slashing some deals by as much as 0.33%, but raising five-year remortgage rates by up to 0.31%.

Mortgage experts warned borrowers to brace for further turbulence.

Emma Jones, of Whenthebanksaysno.co.uk, said: “This pricing seems to suggest the Halifax is expecting rate cuts in the near term but is less sure about the direction of the base rate longer term.

“If you want longer-term peace of mind, you’ll have to pay slightly more for it based on these changes.”

David Stirling, of Mint Mortgages & Protection, told Newspage: “The change in the lender’s opinion must be guided by underlying borrowing costs, as this see-saw of short versus longer term borrowing rates turns on its head.”

Within the Bank of England itself, divisions remain stark. Of the nine members of the Monetary Policy Committee (MPC), five backed a 0.25 percentage point cut, two supported a steeper 0.50 point cut, and two voted to leave rates unchanged.

Paul Dales, chief UK economist at Capital Economics, warned: “The Bank would be more alert to the possibility that this rebound in inflation will be bigger and last longer than it had been thinking.”

James Smith, economist at Dutch bank ING, added: “Services inflation is still too high for many of the Bank of England’s rate-setters… But we think an August cut is still highly likely.”

Experts say the mixed messages from lenders reflect growing uncertainty about what happens next.

Pete Mugleston, of Online Mortgage Advisor, said: “The preference for cheaper two and three-year deals aligns with expectations rates may fall in the coming years, making longer-term fixes less attractive for borrowers.”

Justin Moy, of EHF Mortgages, warned: “The increase in popular five-year fixed deals will be a blow to many landlords… Some borrowers will feel a little disappointed with these announcements.”

And Dariusz Karpowicz, of Albion Financial Advice, cautioned: “This recalibration from one of the UK’s largest mortgage providers suggests a market anticipating medium-term rate reductions… Borrowers face a calculated decision between immediate savings on shorter fixes versus longer-term certainty at a higher price point.”