Recent reports in the national media about the Bank of England warning inflation is likely to fall below 0% have increased speculation that its base rate will dip below the current historic low of 0.5%.

Mark Carney, Governor of the Bank of England, has already stated that the base rate may be further cut if the trend towards deflation continues, which will help mortgage holders hunting for better deals.

Cut-price home loans is a trend that started last year, according to new data from Mortgage Brain. The online mortgage broker reveals that some deals available in January this year are 41% cheaper than they were a year ago. For example, the interest rate for a two-year tracker mortgage with a 60% loan to value was 0.99% in January compared with 1.69% 12 months earlier.

mortgage ratesOther mortgage products that cost borrowers less in January 2015 compared with the same month in 2014 include a two-year tracker with a 90% LTV. According to Mortgage Brain, the cost of this deal fell 32% between January 2014 and the start of the year when the best rate on offer was 2.45%.

Some five-year term products, however, bucked the downward trend in 2014. While the lowest rate five-year fixed mortgage with a 90% LTV fell 24% from 4.29% to 3.24%, the lowest rate five-year tracker with a 60% LTV was 60% higher – up from 1.99% in 2014 to 3.19% as of 1 January 2015.

Figures from Mortgage Brain also show that five year term products saw major rate movement over the last year – with the lowest fixed mortgage rate at 90% LTV falling 24% from 4.29% to 3.24%.

Drops also occurred in the buy-to-let market with the lowest three-year tracker (60% LTV) 17% lower in January than a year previously, down from 3.49% to 2.94% and the lowest two-year tracker (80% LTV) down 15% from 4.29% to 3.65%.

CEO of Mortgage Brain, Mark Lofthouse, said that the drop in mortgage rates is “welcome news” for potential homebuyers, or those looking to remortgage their properties. He added that he’ll be interested to see what will happen in terms of interest rates over the next year.

Lenders will come under pressure to reduce rates again if a fall in oil prices and other deflationary pressures force the Bank of England into cutting its base rate below the current record low of 0.5%.

This will benefit borrowers with variable rate deals, while those on fixed rate mortgages could do well further down the line. However, Carney has previously said he expected the BoE’s base rate will start to return to a “new normal” of 2.5-3% by the end of 2015. While commentators say this is extremely unlikely to happen in the next 12 months, such a move cannot be ruled out in the future.

With interest rates low, great deals on the market and the prospect of further deflationary pressures appearing on the economic horizon, it is a great time to buy and sell residential property in prime areas.

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About the author

Nicolas Holmes

Nick joined Robert Holmes to inject fresh ideas and help grow the New Homes department of Robert Holmes as well as helping to inject technology into the business and to grow its client base. Together with one of the Directors Nick is in charge of all Development opportunities that Robert Holmes deals with along with sales. Aged 40, he provides succession together with the two existing directors. Nick has always been focused on building client relationships and sales. He built up his own gallery in Chelsea, where he had a loyal following of customers and artists.

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