When the inflation rate falls, the ripple effects can be felt throughout the economy – and for those looking to buy a home, remortgage, or invest in property, it’s often a welcome shift. According to the latest figures from the Office for National Statistics (ONS), the UK’s Consumer Prices Index (CPI) rose by 2.8% in the 12 months to February 2025 – down from 3.0% in January. This dip, while slight, is an encouraging sign that the worst of the inflation surge may be behind us.
For mortgage holders and prospective buyers in Northern Ireland, this latest data offers both relief and opportunity.
Causes for Inflation Rate Cuts
One of the key drivers behind the fall in inflation was lower costs for clothing and footwear, which helped pull the overall figure down. In fact, according to the ONS, clothing and footwear prices dropped by 0.6% in the year to February – the first negative annual rate since October 2021.
Other areas that contributed to the drop include housing and household services, as well as recreation and culture. However, the story isn’t entirely about cooling prices. Core CPI, which excludes more volatile items like food and energy, still sits at 3.5%, down slightly from 3.7% in January. This means that while inflation is slowing, it’s still higher than the Bank of England’s target of 2%.
Why This Matters for Mortgages
When the inflation rate falls, the Bank of England tends to come under pressure to lower interest rates. Lower interest rates usually translate into cheaper mortgage deals, making borrowing more affordable which is especially important for first-time buyers or those looking to remortgage.
Currently, the Bank of England has held its base rate at 4.5%, but market watchers are anticipating a rate cut in the coming months. According to interest rate swap data, there was a 76.8% chance of a cut in May at the time of writing, though future cuts later in the year seem less certain.
For anyone considering a mortgage in 2025, the message is clear: if interest rates drop in line with falling inflation, more competitive mortgage products could emerge, potentially saving borrowers thousands over the life of their loans.
Rising Bills Are Coming
While it’s certainly positive that inflation rate falls have started to materialize, it’s not all good news. As highlighted in the original Morningstar article by Ollie Smith, April could bring a fresh wave of cost increases, with bills expected to rise again. In particular, Ofgem’s energy price cap is set to go up, and many companies are adjusting their prices – which could reverse some of February’s gains.
Danni Hewson, head of financial analysis at AJ Bell, put it simply: “It’s hard to get excited about one month’s data when we’re all hyperaware that things are about to get more difficult once again.”
So while we’re seeing a temporary reprieve, household budgets may continue to feel pressure. Still, a slowing inflation trend may help ease the broader cost-of-living burden over the course of the year.
Economic Growth Remains Stagnant
Another factor to keep in mind is the wider economic picture. The UK economy contracted slightly in January, with GDP shrinking by 0.1%, despite predictions of a modest rise. While this could suggest a slowing economy, it also strengthens the case for rate cuts – as the Bank of England often lowers rates to stimulate growth.
Finance Minister Rachel Reeves is expected to address these concerns in her Spring Statement, and her recent cuts to departmental budgets are a signal that the government is tightening spending to maintain market confidence.
What Does This Mean for Northern Ireland’s Housing Market?
For our clients here in Northern Ireland, the combination of a falling inflation rate, steady house price growth, and strong buyer demand (as seen in Q1 2025 housing data from PropertyPal) paints a cautiously optimistic picture.
Lower inflation could help:
- Improve mortgage affordability, especially if rate cuts follow.
- Encourage more buyers to enter the market, sustaining the demand seen in early 2025.
- Ease the burden of rising rents, as renters gain more financial headroom to save for deposits.
While the fact that the inflation rate falls to 2.8% is certainly good news, it’s important not to see it as the end of economic challenges. Mortgage seekers should view this as a signal to start preparing – whether that’s by reviewing their current deal, saving for a deposit, or locking in rates before any further volatility hits.
As always, it is important to consult with expert mortgage advisors to help you to secure the most suitable deal for your circumstances.
