Money blog: What now for mortgages after inflation and election announcements? (2024)

Every Friday we get an overview of the mortgage market with the help of industry experts - before honing in on the best deals available right now with the guys at Moneyfacts.

Two major announcements this week are set to have a big impact on mortgages and the housing market in the coming months.

First, inflation came in at 2.3% for April - within touching distance of the Bank of England's 2% target but higher than the Bank and most analysts had anticipated.

The markets instantly scaled back their expectations for a June rate cut - from around 50% to around 15%.

What does this mean for borrowers?

It's probably too early to say - with TSB and Santander announcing cuts on Thursday, but Barclays going the other way.

David Hollingworth, associate director at L&C Mortgages, said: "Mortgage rates have eased back a touch in recent weeks, but [the inflation] figures may well hold back the chance for that to become a stronger trend. A big fall in inflation was already expected and therefore already priced into fixed rates.

"Holding off in the hope of rates dropping could make for a bumpy ride for homeowners. Those eyeing the end of their current fixed deal may want to secure a rate now. That still leaves the chance to keep rates under close review and switch to a better deal if rates do improve before the end of the current product."

James Hyde, spokesman forMoneyfactscompare.co.uk, added: "Week on week, the overall average two- and five-year fixed rates remained very steady, currently sitting at 5.93% and 5.50% respectively."

The second big announcement was the general election - which we now know will be on 4 July.

Richard Donnell, executive director at Zoopla, said buyers who are close to agreeing a sale will "ideally want to push through and agree to sales now".

However, those who are "earlier in the process" may try to "delay decisions until the autumn after the election is over", Mr Donnell said.

This election may not have as much impact as previous ones, though.

That is because there is "not a huge divide in policy between the two main parties", Mr Donnell said.

Best rates on offer right now

This week we've asked the independent experts at Moneyfacts to look at the best rates currently on the market for homeowners who are on the move....

Moneyfacts advises borrowers to always look beyond the best rates as additional costs and conditions mean you could end up paying more.

"Factors such as a low product fee, free valuation or legal fees, and cashback options can mean that certain deals are more cost-effective than those that may have a more eye-catching headline rate," said Mr Hyde.

Here's a look at the deals judged "best buys" by Moneyfacts this week...

As we've been reporting, the energy price cap has been set at £1,568a year for a typical dual-fuel consumer and will come into force from July.

The new cap represents a 7% decrease from the current rate of £1,690.

It has played a significant role in reducing the UK's inflation rate to a near three-year low of 2.3%.

But respected market researcher Cornwall Insight has predicted the drop in the price cap will be temporary and that bills will likely rise once more in the run-up to winter.

Its forecasts show a typical bill could increase to £1,762 - even higher than the current rate - from October and remain around this level from January 2025.

The prediction is due to an uptick in the wholesale market.

"It is clear the cap in its current form is not going to bring down bills to pre-crisis levels,"Dr Craig Lowrey, principal consultant atCornwall Insight, said.

"However, while the general election is likely to put a halt to any immediate reforms to household energy bills, parties may use this opportunity to highlight how they intend to approach this challenge in the future.

"Whatever the outcome of the election, we hope the government will work with Ofgem to review the current cap and implement changes that not only lower bills but also support struggling customers."

Today's fall in the energy price cap will be "small comfort" for those struggling with the cost of living, the chief executive of Citizens Advice has said.

Dame Clare Moriarty said the organisation's data shows "millions have fallen into the red or are unable to cover their essential costs every month".

She added: "People cannot rely on lower energy prices alone to escape the financial issues they've been experiencing.

"That's why we need better targeted energy bill support for those really struggling to keep the lights on or cook a hot meal."

The cap will fall to £1,568 a year from 1 July - a drop of £122 from the previous quarter.

The UK's gas prices are now lower on average than in other European countries, the energy secretary has told Sky News.

"If you look at households in this country, 75% of households' heating is gas," Claire Coutinho said.

"And actually that's now significantly lower than the European average."

She also said she was setting out plans for bills to "continue to be lower" - although we are now into a general election campaign, and the Conservatives may soon be out of government.

Ms Coutinho said: "So whether it's standing charges, which we want to be fairer, or more competition and comparison in the market, or better regulation of energy brokers with businesses, today we're setting out further steps to make sure that people can keep their energy bills low."

Today's drop in the energy price cap will be "seized on by the Conservatives", political correspondent Rob Powellsays.

It is likely to be presented as evidence that the economy is "starting to settle down and turn a corner and more evidence of the Conservative plan working".

But, he says, that is "debatable" - because when energy prices spiked initially, ministers suggested it was out of their control, caused primarily by Russia's invasion of Ukraine in February 2022.

"I think it might be a bit funny for them to try and claim that now they're coming down - that that's due to their plan," he says.

"In reality, it is down to dropping wholesale energy gas prices."

Energy policy is likely to be the focus of both Labour and the Tories today.

Some more breaking money news this morning.

Retail sales volumes - meaning the amount shoppers bought - fell by 2.3% last month, after a fall of 0.2% the month before.

Sales volumes fell across most sectors, with clothing retailers, sports equipment, games and toys stores and furniture stores doing badly as poor weather reduced footfall.

Economists had expected a fall of 0.6%.

The energy price cap will fall to £1,568 from 1 July, the regulator Ofgem has announced.

That is a fall of about 7%.

It is £506 less than thecap in July last year, when it was £2,074.

It is also £122 lower a year than the previous price cap, in place from 1 April to 30 June, which is £1,690.

You are covered by the energy price cap if you pay for your electricity and gas by:

• Standard credit (payment made when you get your electricity and gas bill)
• Direct Debit
• Prepayment meter
• Economy 7 (E7) meter

We'll find out the new energy price cap at 7am, but the average annual dual-fuel bill for a UK household is still about 40% - or £450 - higher than before the energy crisis, a non-profit organisation has said.

The Energy and Climate Intelligence Unit (ECIU) said that over the past three years, the average household's dual-fuel bill had reached £6,800.

That is double the cost of energy bills in the previous three years, it said.

Because of the Energy Price Guarantee (EPG), the government paid more than £1,000 of this increase, with households covering another £2,400, the ECIU said.

From 1 October 2022 until 30 June 2023, the government's EPG supported all households with a domestic gas and/or electricity contract.

"Households are still struggling with bills that are hundreds of pounds higher than pre-crisis levels and estimates suggest bills may rise again as we head into winter," Jess Ralston, from the ECIU, said.

"Whatever colour the next government is, we'll be heading into a winter still heavily dependent on volatile gas markets."

She also called for more renewable sources of energy, a move away from gas boilers, and a shift to electric heat pumps.

The new energy price cap from July will be announced at 7am.

Respected predictor Cornwall Insight gave its final prediction for the announcement yesterday.

Based on wholesale costs, the cap is expected to fall to£1,574.37a year for a typical dual-fuel household - a 7% decrease.

The current price cap sits at £1,690 a year for a typical household.

In October 2021, the last time the cap was set before the Russian invasion of Ukraine, it was £1,277 a year.

The cap explained

The cap is controlled by energy regulator Ofgem and aims to prevent households on variable tariffs being ripped off.

It doesn't represent a maximum bill. Instead it creates an average bill by limiting how much you pay per unit of gas and electricity, as well as setting a maximum daily standing charge (which all households must pay to stay connected to the grid).

It changes every three months - in January, April, July and October.

The changes are mostly based on the costs faced by suppliers for providing energy.

Who is covered by the cap?

Most households will be covered by the energy price cap.

You'll know your bills are price-capped if you're on a standard variable tariff.

A man's social media post has gone viral (it's been viewed more than six million times) after it showed him being quoted £786.80 for two return train tickets from Newcastle to London.

X user Lee later clarified the tickets were for a Tuesday to Thursday trip in seven days time.

A screenshot of the quote showed the tickets he was trying to purchase were anytime single tickets, which had been advertised on the website as the "cheapest" option.

"Are you out of your actual minds?" Lee said in his post.

Other social media users were just as shocked, with many also complaining about increased fares.

"I book train travel for work colleagues and it's eye watering.. if it was cheap to use public transport, as it is in other countries, more people would use it," one replied.

"We live an hour away from London and train tickets on the weekend can set us back over £100 each. So then we drive which is the total opposite of what public transport is supposed to encourage?" said another.

Rail tickets increased by 4.9% in England and Wales in March.

An LNER spokesperson told the Money team: "We haven’t been provided with the full details for this journey. However, it appears the prices quoted are for peak time travel during a period of very high demand.

"Alternative trains have much cheaper Advance and 70 Minute Flex tickets available for travel in Standard from Newcastle to London King's Cross, subject to seating capacity being available.

"We always encourage customers to book as early as possible for best value fares."