If inflation ticks up, "all eyes will be on SWAP rates" - brokers

January typically sees an increase in inflation as certain items increase in price, for example some insurance premiums go up every Janaury. However, this is bad news for the mortgage market. At the last MPC meeting, two of the panel voted to increase rates, in stark contrast to what the majority of the public and politicians want. The inflation figures suggest that rates will stay high for longer and won't come down until the summer.

Inflation over the past few months has been artificially declining because of the way it’s recorded. The OBR state energy has reduced this winter compared to last, which it has, but not by anywhere near the figure stated. Last winter, the government gave everyone £400 towards their heating bills and withdrew the support this winter. Energy came down by circa £200 but because of the support withdrawal, but households are still £200 worse off. Wages have been rising higher but this also will not be reported because the biggest strike agreements which took place a year ago in the NHS will drop out, showing that wages reduced. The government have not taken tangible steps to achieve their 2% target, it’s just timing. If anything, their actions have made inflation worse.

There is a huge amount of anticipation ahead of tomorrow's CPI print.
Most of us feel that the news will be negative and that an increase is inevitable. It seems lenders have been factoring that in accordingly, as rates have been rising across the board. If we happen to see a drop in inflation then I am sure this will fuel a change of direction with rates coming back down and this will help energise what has been a positive start to 2024.

An increase in inflation is widely expected, partly down to the energy price cap, but also due to the troubles in the Middle East. SWAP rates are only part of the reason for lender rate fluctuations, and I suspect that over the coming weeks there will be much toing and froing as lenders manage workloads and business levels as well as the fluctuating pricing on the markets. For anyone looking for a mortgage right now, the advice is get that rate secured as soon as possible because if you don't it could cost you significantly.

It looks like SWAP rates have already priced in the potential of a small increase in inflation this month, with the steady increase across all metrics, and eventually the mortgage products bouncing from their lowest point at the end of January. Mortgage pricing is not just about inflation or SWAP rates, but also about the levels of activity and ability of lenders to administer application volumes. With lenders trying to stimulate the purchase market, there is a genuine push from most to keep those rates lower, increasing rates for those remortgaging. The Product Transfers will look after themselves, to a point.

Inflation may well nudge up again, signalling longer term pain for mortgage holders. With the energy cap rise, wages continuing to outpace inflation for the last six months and consumers starting to find their feet again, the Bank of England will be looking for more of a cooling off phase before considering rate reductions. The result is that rates could remain higher for longer. In these uncertain times, we advise borrowers to focus on individual priorities rather than second guessing economic movements.

It has been another extraordinary period in the mortgage market where many a soothsayer has come unstuck. Accurately predicting the market with the myriad of forces currently at play, both nationally and globally, is a high-stakes game of chance. While any further rise in inflation is likely to be just a minor detour in an ongoing journey to the 2% target, borrowers adopting a wait-and-see approach could find themselves left behind. It is better to lock into a rate sooner rather than later, as there is a high possibility of future shocks and surprises. We also do not know if any artificial stimulus will be introduced by a Government desperate for votes, which could lead to an unexpected strengthening of house prices.