Recession set to "knock the socks off" the last one
The UK Consumer Prices Index (CPI) has risen to its highest level since March 1992, according to the Office for National Statistics (ONS).
Rob Gill, founder of Altura Mortgage Finance believes that inflation hitting 7% will have lenders and borrowers alike on red alert for further interest rate rises.
“Mortgage rates tend to move in expectation of base rate hikes, so if this inflation stokes expectations of an imminent base rate rise, mortgage rates could rise within days,” he said.
The Bank of England’s Monetary Policy Committee (MPC) voted to increase the bank rate by 0.25 percentage points, from 0.5% to 0.75%, in March. This rise was designed to counter an expected global surge in inflation caused by rising fuel prices as a consequence of Russia’s war in Ukraine.
Read more: Base rate rises no surprise – broker MD
Graham Cox, founder of the Self-Employed Mortgage Hub also believes that inflation reaching a 30-year high is an indicator that the Bank of England may be forced to up interest rates again.
“We could even see a 0.5% base rate increase at the next Monetary Policy Committee meeting,” he added.
Cox went on to say that lenders are already tightening their mortgage affordability assessments, and April has seen increases to the energy cap, National Insurance and dividend tax.
He added that with the days of ultra-low mortgage rates seemingly numbered, house prices could fall later this year.
“As bad as it is, inflation at 7% does not reflect the rise in energy prices so we are going to see it rise further in the coming months,” according to Jonathan Burridge, founding adviser at We Are Money.
Burridge went on to say that it is likely the Bank of England will raise the base rate further as it is a blunt tool to curb spending.
“That will cause variable rate mortgages to rise and fixed rates will be adjusted at the same time. We are in for a couple of very challenging and painful years ahead,” he explained.
Samantha Bickford, mortgage specialist at Clarity Wealth Management, thinks the country is heading for a recession that will “knock the socks off the last one.”
“Another interest rate rise, and soon, is inevitable and will leave the poor people of Britain struggling even more. And the worst is yet to come,” she added.
Bickford went on to say that for those due to remortgage soon, they should not delay, and expressed the importance of securing a long-term fixed deal.
Lewis Shaw, founder of Shaw Financial Services, believes undoubtedly, that these latest inflation figures will have a direct impact on the property market as swap rates and the Bank of England base rate will all be under immense pressure leading to a further increase in mortgage rates.
“Yes, higher inflation is positive in so much as it erodes the real-terms value of any debt you carry, but that only holds true if your wages are keeping up with price rises,” Shaw said.
Robert Payne, director of Langley House Mortgages, believes the rise in inflation is a massive concern for the mortgage market as there is a real risk of existing borrowers struggling to maintain their payments on higher interest rates.
“Lots of borrowers have borrowed to their maximum capacity on the lowest rates in history so despite the fact lenders stress test their maximum borrowing limits, the reality is many will struggle with the increased payments and the impact of higher living costs,” he added.
Alastair Hoyne, managing director at Finanze, went on to explain that the country is suffering as a result of the increase in energy prices, and the rising costs of materials and food - it is eroding the value of money and this needs to be tamed by the Bank of England. If the bank does not address the relative ease at which money is borrowed, Hoyne believes the problem will be exacerbated as property investors become imprisoned by payments they cannot afford due to tenants being unable to pay their bills.
He believes this could be addressed by either restricting lending, forcing rates to increase, or by forcing banks to require larger deposits.
“The only way out of this is to increase savings and the banks themselves need to do their bit to help by raising their rates to induce savings,” Hoyne concluded.
