The latest CPI figures have prompted fresh debate across the mortgage and property market, with questions remaining over the direction of interest rates and affordability as we head into the autumn. With household costs continuing to put pressure on finances and lenders responding to changing market expectations, we asked a selection of mortgage and property experts for their views on what the latest inflation picture could mean for borrowers, buyers and the wider housing market.
“With the consumer price index rising above 3 per cent in August, well ahead of the Bank’s 2 per cent target, the chance of an interest rate rise – and more – looks increasingly likely. However, the Bank might pause a little longer until the November meeting, resulting in higher borrowing costs soon after Chancellor Healey’s first Budget.
Higher inflation figures are not surprising given the ongoing Middle Eastern conflict and its impact on oil and energy prices. Swap rates, which underpin the pricing of fixed-rate mortgages, have been volatile in recent weeks, resulting in several of the biggest lenders, including HSBC, Nationwide, Santander and Halifax raising their mortgage rates. Other lenders are expected to follow suit to avoid being swamped with enquiries as borrowers search for the cheapest rates.
There are growing fears that the Bank of England will have to raise interest rates several times to keep a lid on inflation, pushing up Swap rates and, in turn, mortgage pricing.
Borrowers can protect themselves as much as possible by planning ahead. Speak to a whole-of-market broker and don’t delay – lock into a new product now. If rates fall by the time you come to take out the mortgage, you should be able to switch to a cheaper deal at that time, but if rates rise, you will be pleased you acted when you did.”
Mark Harris, chief executive of mortgage broker SPF Private Clients
“There’s almost nothing good in this inflation data. Things went from bad to worse in August, and prices are rising faster in the UK than in both France and Germany.
There was never any doubt about the chief culprit – it’s the soaring cost of fuel. Prices at the pump are now 23% higher than they were a year ago.
Drivers feel this pain directly, and rising fuel prices have also been pushing up prices across the board.
Six months on from the start of America’s conflict with Iran, there’s no end in sight to the fighting and its interruption of global oil supplies. Wholesale gas prices are high too, and consumers face a surge in their energy bills next month.
In other words, inflation is high now and there’s a real risk it will get worse if left unchecked.
All this means the Bank of England may feel it has little choice but to raise interest rates in order to tame the UK’s worsening inflation problem – the only question now is when.
At the start of September, few expected the Bank to raise interest rates this month. But today’s surge in CPI means the chances of the Bank’s Monetary Policy Committee voting for an immediate rise when it meets tomorrow could be as high as 50/50.
That would deliver instant pain to anyone on a variable rate mortgage, pushing up their monthly repayments. Lenders have also been ratcheting up their fixed interest rates this week already as the swap markets, which track future rate expectations, imply that the Bank could raise rates as many as five times in the next year.
That’s probably overkill, but hopes that Britain would weather the inflationary storm have evaporated. We’re in the teeth of it, and thousands of homeowners and buyers face some painful months ahead – and the stock markets are recalibrating for a slowing economy and less consumer spending.”
Samuel Fuller, Director of Financial Markets Online
“Inflation rising again comes as little surprise as the shock to energy supply continues to push up prices. You only have to go to the petrol pumps or the supermarket to really see that in action. While GDP has remained pretty resilient in the face of such volatility, we know the longer-term picture is likely to be less positive – particularly as the Iran conflict rages on and oil prices climb in response. I’m not expecting it to be enough yet to force the hand of the MPC tomorrow with another hold still the likely outcome. However, we do have to prepare for the prospect of a rate rise in the near future if inflation accelerates further.
While there has been plenty of movement from lenders across the market, we have also seen positive activity from clients, with a modest bounce in buyer registrations so far in September, as clients return to the market after the summer. While there are undoubtedly those proceeding with real caution, there are also people pushing on with their plans. Advisers play a crucial role in such a complex and fast-moving market. Rather than sticking our heads in the sand, we have to be there for those clients who are trying to make moves, capitalise on opportunities and secure funding still available in the market and secure deals before any further changes.”
Carl Parker, national director at Just Mortgages
“Today’s rise to 3.1% is the second consecutive increase following July’s, and that’s worth noting. One rise can be a blip, but two in a row starts to look like a trend. With the MPC meeting tomorrow, this is about as poorly timed a reading as it could be for anyone hoping for a rate cut, but it is unlikely to force an increase at this stage.
Two rises in a row makes a hold more likely tomorrow, with a hike unlikely but not impossible. Lenders will already have been adjusting their pricing in anticipation, not waiting for the announcement itself. If you’re a first time buyer with an offer on the table, that’s a real reason to lock it in now rather than assume it’ll still be there next week.
The situation is similar for anyone remortgaging, but the stakes are higher. If your deal ends in the next few months, don’t wait for tomorrow’s decision to act. Lenders are already pricing in today’s data, and the deals available right now might not still be there once the announcement lands.
If you’re moving home, don’t put your plans on hold over this. Just make sure the numbers you’re working from account for some potential movement in rates between now and when you complete – not just where you stand today.
A mortgage adviser can work through what a rate change actually means for your budget, what your options look like, and what the timing means for your specific move. None of that comes from a headline – it comes from sitting down with you and working through your specific circumstances.”
Ben Thompson, Director of Home Moving Strategy, Mortgage Advice Bureau
“Today’s inflation figures are a reminder that the UK’s battle with rising prices is not over, with CPI increasing to 3.1%, from 2.9%. The bigger headache for the MPC tomorrow, though, isn’t the August figure but what comes next. With Brent crude now well above $100 a barrel and tensions in the Middle East intensifying, there could be significant pressure on energy and fuel costs over the coming months. With winter approaching, that could put another squeeze on household budgets, adding to affordability pressures at a time when many borrowers are already facing higher mortgage costs.
With inflation moving further above the Bank of England’s 2% target, the prospect of interest rates staying higher for longer will remain a concern for borrowers.
For the mortgage market, that pressure will be particularly relevant for those coming to the end of fixed-rate deals. As borrowers refinance in a higher-cost environment, lenders will need to be prepared for increasingly varied customer circumstances and affordability pressures.
The key challenge now is maintaining flexibility. Lenders need to be able to respond quickly as inflation, interest rates and borrower behaviour shift, rather than relying on a one-size-fits-all approach.”
Richard Pike, sales and marketing director at Phoebus Software
“The year to date has been a considerable rollercoaster for many households, with rising costs putting increasing pressure on household finances. Consumers have rightly shown caution around longer-term, high-value borrowing, with the impact being felt across the housing market.
With inflation tracking upwards, tomorrow’s base rate decision will be closely watched and could have a direct impact on the housing market as we head towards the Autumn Budget.
The housing market remains finely balanced, with key factors such as higher food and energy costs continuing to weigh on consumer confidence and ongoing affordability.”
Nathan Emerson, CEO of Propertymark
