Inflation's up again - what does this mean for the mortgage market?

A tiny 0.1% increase in the CPI inflation figure for December is unlikely to change the downward pressure on mortgage rates. The RPI is actually down on Novembers figure, the lowest in over 2 years. I still expect mortgage rates to creep down and a base rate cut from the Bank of England in the next 4-6 months seems inevitable. We are seeing more customers enquiry about variable rate commercial mortgages, as they are expecting rates to come down in the next 1-2 years.

Inflation's recent uptick appears to be a minor blip, not derailing the trend of mortgage rate cuts. Lenders, eager to maintain business, are continuing with reductions, albeit more cautiously. The slight CPI increase is unlikely to significantly impact the overall downward trajectory of mortgage rates. With RPI decreasing and expectations of a Bank of England base rate cut within months, the outlook remains positive.

I think this will have the potential to cool down the recent rate wars we have been seeing with lenders as they look to take stock. They will want to make sure today's figures are just a blip and not a trend that will continue. I think in the more medium term though lenders will continue to cut their rates as they are all scrabbling round for business after such a quiet year last year.

In terms of the mortgage market inflation is still the bogeyman in the background at the minute. The BofE know they can't reduce rates unless they hit the 2% inflation target and with the issues in the Gulf around shipping this could have the potential to provide a nasty sting in the tail on those inflation numbers and mean the base rate needs to stay higher for longer.

More a stabilisation of inflation. However the big risk is in the Middle East, with both the Gulf and Red Sea flashpoints posing a massive inflationary risk. This is twofold:
1. Impact to natural gas and oil prices - a significant part of Europe's supplies come from the Middle East. If this supply is reduced due to infrastructure damage and the need to send supplies via the Horn of Africa rather than through the Suez canal, then expect petrol, electricity and gas bills to rise significantly.
2. Impact to global shipping costs and availability - if the Red Sea is closed that means shipping is unable to use the Suez canal so instead will have to go the long way around Africa. This imposes weeks of delays to shipping making it more expensive but also reducing availability of shipping for goods which will further increase costs due to a supply vs demand issue. This impacts exports and imports, making our goods more expensive in Asia and our imports more expensive at home.

A slight uptick in inflation might stir things up a bit, but it's more likely to bring a calming influence to lender rates rather than a reversing of the downward trend we've seen all year so far. The impact of this inflation surprise will unfold in the coming days, but despite some mixed signals, the housing market has been on the upswing since the beginning of the year and unless inflation keeps climbing next month, it looks like we're still in for a buoyant and positive mortgage market with rates continuing to drop in the year ahead.

UK inflation heading north by a touch in today's December 2023 release of data was on the cards if you view other global situations where the same is occurring. This "shouldn't" have any effect on the next Bank of England base rate meeting on 1st Feb - however, it does make our earlier prediction of the first base rate reduction at March's meeting now unlikely sadly. Since this morning's announcement 3 High Street lenders have further reduced their fixed rates before 12.00 - indicating that they had this situation on the cards and were ready to strike back into the mortgage rate war. The courage of these lenders is to be encouraged, confidence is very much needed to be demonstrated by these large financial concerns. 2024 still looks likely to be a busy year for the property market and downstream industries.

I believe that despite the rise in inflation, the trend of decreasing interest rates on mortgages is likely to persist. Lenders are currently engaged in a price war, demonstrating a strong desire to still lend. Therefore, I anticipate a continued slight reduction in interest rates with lenders in the foreseeable future

If swap rates remain unchanged... Not a lot! If this makes swap rates rise though, we could see a wave of lenders raising rates again and then a bumpy up/down road ahead. Stability in the market is key, and any bumpyness will just cause issues.