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Inflation has decreased

Inflation has decreased to 3.9%, signalling potential interest rate cuts for mortgage borrowers and presenting improved options for savers.

The Consumer Prices Index (CPI), which tracks the year-on-year rise in the cost of goods and services, dropped from 4.6% in October to 3.9% in November. This decline is viewed as positive news for mortgage holders, reinforcing the belief that interest rates have reached their peak.

The Bank of England has been actively increasing interest rates in an attempt to bring inflation down to its 2% target. However, in its last three meetings, the Bank has maintained the rate at 5.25%.

Moreover, lenders have been reducing fixed mortgage rates for several months. Moneyfacts.co.uk reports that the average two-year fixed mortgage rate is now at 5.95%, with the average five-year fixed residential mortgage rate currently at 5.57%.

Notably, some of the best rates in the market have dropped well below 5%. L&C Mortgages indicates that certain two- and five-year rates have fallen to below 5% and 4.5% respectively.

David Hollingworth, Associate Director at L&C Mortgages, comments: “In a housing market experiencing lower levels of activity, competition among lenders remains fierce. As the market increasingly expects the next base rate move to be a decrease, lenders have been able to pass on improvements in funding costs.

“Today’s news is likely to continue this trend, potentially seeing five-year fixed rates approaching the 4% mark soon. This would be a significant relief for homeowners nearing the end of their current low fixed rates, who are preparing for the expected increase in monthly payments.”

Impact of Inflation on Savings Rates

Savers are advised to act swiftly to find the best account for their funds as rates continue to drop.

The decrease in inflation means more savings accounts now offer interest rates that outpace inflation. According to Moneyfacts.co.uk, there are 1,127 accounts offering returns above inflation – including 109 easy access accounts, 135 notice accounts, 84 variable rate ISAs, 246 fixed rate ISAs, and 553 fixed rate bonds.

James Hyde, spokesperson at Moneyfactscompare.co.uk, states: “Last month marked the return of inflation-beating savings accounts after a two-year absence, and the recent drop in inflation has increased their availability significantly.”

He adds, “However, given providers’ tendency to withdraw popular products once funding targets are met, there’s considerable fluctuation in the market. It’s crucial for consumers to act promptly to secure the most advantageous deals.

“Many flexible accounts offered by major banks are still well below the market average, incentivising savers to seek better options. When researching new accounts, savers should carefully consider terms, incentives, and accessibility.

“It's worthwhile to consider diversifying investments across easy access accounts and fixed bonds. Additionally, there are notice accounts to think about, although currently, the best 30-day notice rates are lower than the top easy access rates.”

For more information or mortgage advice, please get in touch.

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