UK two-year fixed mortgage rates fall for first time since May

LONDON, Jul 20 (Reuters) – A key British mortgage rate fell for the first time in almost two months on Thursday, breaking the previous day’s 15-year high as concerns about the inflation outlook and Bank of England interest rates eased.

The two-year average fixed residential mortgage rate, the most common form of home financing, 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% on the back of faster-than-expected inflation and wage growth, with investors subsequently betting that the BoE could raise rates as high as 6.5%.

Those concerns, in turn, pushed two-year fixed-rate mortgages above the peak they reached last October, when then-Prime Minister Liz Truss’s budget plans threw Britain’s bond market into turmoil.

Rising borrowing costs have weakened the country’s housing market, adding to the turmoil in the broader economy.

However, a Lower-than-expected consumer price inflation Wednesday’s reading weakened BoE rate hike expectations and pushed down the two-year swap rates that prop up mortgage lending costs.

Investors now think that the possibility of a 5.75% or 6% spike in the BoE bank rate is evenly split.

The average interest rate for a mortgage with a five-year fixed rate period also fell on Thursday, down to 6.31% from 6.33% on Wednesday, Moneyfacts said.

Reporting by Suban Abdulla Editing by William Schomberg

Our standards: The Thomson Reuters Trust Principles.