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Inflation data "could be sink or swim for mortgage holders"

ended 17. July 2023

Ahead of Wednesday's inflation data, UK newswire, Newspage, asked financial services experts what they expect to see and what the ramifications could be for the base rate, businesses, mortgage borrowers, the economy and property market if inflation once again proves stubborn. Their views are below.

12 responses from the Newspage community

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Bob Singh
Founder at Chess Mortgages
This month's inflation figures are do or die for the property and mortgage markets. With inflation proving stubborn, we desperately need it to follow the same downward trend as our US counterparts who saw a drop last week that precipitated a small decline in swap rates. Even with a slight fall in inflation, we are not out of the woods just yet. The spectre of wage inflation looms large not to mention that Xmas spending starts soon, too. It's clear that raising interest rates to induce a recession hasn't worked so far. With elections looming, any moves to raise taxes will be resisted by the Tory grandees. Anything lower than 7% would be good to stave off or defer any rate rises that are already beginning to strangle the housing market.
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Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
Hopefully, Wednesday's inflation data will present a more positive outlook and start to ease back following recent base rate increases. If it doesn't, we could well see further rate rises and more pain for mortgage borrowers and businesses. If the base rate increases fail to impact inflation as expected, it is likely the Government will introduce changes to fiscal policy, with increases in income tax in an Autumn budget a likely option. Tough times are ahead, but inflation must come down. With stubbornly high inflation, it seems like we have to break the economy to fix it.
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Ross McMillan
Owner/Mortgage Advisor at Blue Fish Mortgage Solutions
The week ahead is a hugely significant one for the rest of 2023. The inflation data has now become so pivotal and seemingly the only barometer of concern to the Government and Bank Of England that this week's numbers could determine the fate of the UK property and mortgage markets for the rest of 2023. If the numbers are disappointing, then the time to call for the lifeboats may well be upon us and a worrying few months will be ahead. However, if we can see a similar downward pattern to the US, then whilst choppy waters remain likely, this should at least give hope to mortgage holders that the relentless pounding from the Bank of England over recent months may diminish sufficiently to allow borrowers the chance to breathe a little. Given the one-track mind of those pulling the rate policy levers, stagnation in the inflation rate will almost certainly see average fixed mortgage rates screech over 7% for many, which is a scenario we must all hope we avoid.
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Jamie Lennox
Director at Dimora Mortgages
This week's inflation data will be a case of sink or swim for millions of mortgage holders around the UK who are already treading water to stay afloat. Last month's data had huge consequences for the rates available on mortgages and if this next print doesn't drop below the expected targets, there could be further turmoil for mortgages with real long-term consequences to the stability of the housing market.
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Anyone with a mortgage will be anxiously looking forward to Wednesday's inflation data. The drop should be more significant than recent months, with fuel, energy and food all seeing decreasing prices. This should be welcomed by the Bank of England, which will put the brakes on further rises. Even if the Bank holds off on more rises, this won’t be the end of the misery for homeowners as the effects haven’t started to kick in yet. There any many millions of homeowners to come off fixed rates over the next 12 months, so we need to see inflation fall significantly over the next few months for Threadneedle Street to start slashing rates to stave off a recession and an impending housing market crash.
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Chris Barry
Director at Thomas Legal
Wednesday’s inflation data is vitally important for borrowers across the country. The Bank Of England's only game plan to bring down core inflation is to raise interest rates, thus taking money out of the system. However, this is being countered by high levels of pay rises and the fact many people are still on ultra-low fixed rates. We don’t expect the latest inflation data to show drastic reductions, mainly because previous interest rate rises have not been in place long enough to affect the mass market. Two thirds of owner-occupied houses are unencumbered and a large chunk of borrowers opted for a 5-year fixed rate when they purchased in the lead-up to the last SDLT deadline in the summer of 2021. Further interest rate rises are inevitable, however this strategy is not a quick fix and will be catastrophic for anyone with a high loan-to-value who may be juggling other unsecured debt such as credit cards or car finance, which will also go up in line with central bank rises.
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Stephen Perkins
Managing Director at Yellow Brick Mortgages
Like everyone, I am hoping for a significant drop in the inflation figures this week. However, this may not be the case and if so may lead the Bank of England to further raise interest rates. Raising interest rates, so far, has not worked at controlling inflation and has a lag period of 18 to 24 months to have an impact according to the Bank of England. Rate increases may have worked for more traditionally caused periods of inflation in the past, but with the current inflation being due to unprecedented geopolitical and pandemic-related factors, simply increasing interest rates does not work. The majority of the current inflation is based on energy and food prices, and people will still need food and energy no matter how high interest rates go. More rate rises will merely exaggerate the cost of living crisis, hurt the economy, disrupt the housing market and will push many households beyond the brink.
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Elliott Culley
Director at Switch Mortgage Finance
The Bank of England have made it clear that the base rate rises are directly linked to inflation data. As a result, everyone will be hoping there is a significant drop in inflation and especially core inflation. If we see a significant drop, this may mean the base rate doesn't go as high as predicted. As a result, swap rates may reduce, which in turn should mean lower mortgage rates. If inflation doesn't reduce by much or at all then rate rises will certainly be locked in and the forecast then looks poor. Ultimately we are in the hands of Andrew Bailey and the Monetary Policy Committee, and the pressure will be on them to make the right decision in August at the next meeting.
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Joe Garner
Founder & Managing Director at Joe Garner Consulting
The markets are betting on an interest rate rise, which means we are potentially looking at a rise in inflation or, at the very best, that it stays as it is. As we enter the Summer months, where traditionally we see an increase in spending, it is likely that the base rate will hit 5.25%, maybe 5.5%, before the end of the year. The finance minister repeating “we must stick to our guns” can be roughly translated as “we have no clue what to do” backed up by the PMs desire to be popular, only rivalled by that of David Brent. It is time to buckle up for a trip back to the 90s.
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Mark Grant
Business Finance Adviser at The Business Finance Branch
Never have so many business owners watched economic data releases as closely as they do the Office for National Statistics' inflation data, and this week is critical again in signposting the Bank of England's interest rate verdict on August 3rd. Market forecasts point to a 0.5% reduction in CPI inflation to 8.2% in June, and with business confidence low and the economy already dampened down by recent interest rate rises, many businesses will continue to feel hit by ongoing price rises and increases in the cost of their credit.
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Russell Maggs
Mortgage & Protection Adviser at Maggs Financial Services
We've been told for the last 18 months that it would take up until now, if not sooner, for inflation to start to fall. It is, after all, a 12-month rolling calculation. So on Wednesday, I fully expect one of two things. Either we will see a further reduction in inflation into the sixes or sevens, which would see mortgage markets breathe a sigh of relief. Or, some serious questions will need to be answered about the Government's plans to halve inflation this year and a proper conversation about closer ties to the EU to fix some of the issues linked to Brexit, increased costs of trade and the shortfall in workers in the UK.
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Ian Hepworth
Director at Funding Solutions UK Limited
Falling inflation does not mean falling prices. It just means that prices are rising at a slightly lower rate. The base rate is predicted to rise further before it starts to fall. For businesses, this means increased borrowing costs. The base rate has already risen 4.90% in 18 months. That means an additional £49,000 of additional interest for businesses with £1m of borrowing. My concern is that raising the base rate is not effective. Many argue that this is supply-side inflation that will naturally fall as supply chains normalise. Rising interest rates could well push the UK into a recession.