MANY Britons will be celebrating the news that inflation is falling as slowing price rises ease the pressure on our purses.
Inflation has dipped to 2.8 per cent, down from a peak of 5.2 per cent last September, according to the consumer prices index, helped by a slowdown in fuel and food prices.
Inflation could even fall below the Bank of England’s target of 2 per cent later this year.
So how should you prepare for the new low-inflation world?
Falling inflation should cheer mortgage borrowers, because it means interest rates are likely to stay low for even longer.
If inflation was raging, the Bank of England would be under pressure to bring it under control by hiking the base rate from today’s historic low of 0.5 per cent. Now the first rate rise may not come until 2016 or 2017.
The Bank could even slash the rate to 0.25 per cent in a bid to revive the economy, says Islay Robinson, managing director at mortgage broker Enness Private Clients.
“Anybody with a base-rate tracker is onto a winner, as they can expect their payment rate to stay put, or maybe even fall.”
If you are looking to take out a new mortgage, this strengthens the arguments in favour of a low-cost tracker.
Unfortunately, millions of borrowers trapped on their lender’s standard variable rate (SVR) won’t feel any benefit from falling inflation. “Banks and building societies have completely decoupled their SVRs from the base rate. Halifax, RBS and Bank of Ireland recently increased their SVRs, even though base rates haven’t changed at all,” adds Robinson.
Anybody with an SVR above 4 per cent and a loan-to-value below 85 per cent can almost certainly save money by remortgaging, says Mark Dyason, director at broker Edinburgh Mortgage Advice. “If you haven’t reviewed your mortgage for a while you should shop around,” he says.
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