Data out this morning revealed the Consumer Prices Index (CPI), which measures how much the price of goods and services has changed over a year, had risen to 2.3% in the 12 months to October – this was up from 1.7% in September.
Interest rates are heavily influenced by inflation. When it dipped below the Bank of England’s target rate of 2% in September, the 0.25% cut to interest rates followed soon after.
But now inflation has risen above the target, another cut to the Base Rate looks less likely.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, the online investment platform, said: “Homeowners and first-time buyers are likely to be disheartened by the latest inflation reading, as it reduces the likelihood of a third rate cut this year.
“The average cost of a new fixed-rate mortgage has been creeping up since the Budget, as lenders price their products to reflect expectations that interest rates may stay higher for longer.
“With the latest inflation reading confirming that inflation has not only risen back above the BoE’s 2% target but has come in higher than expected, it means that mortgage borrowers could have more pain to contend with if more lenders adjust their rates upwards.”
Will mortgage prices rise further?
Borrowers on tracker or variable rate mortgages will be impacted most by this news. Another rate cut in December would have been an early Christmas gift, reducing repayments at the time when savings are needed most.
But it’s not great news for borrowers who are looking for fixed rates – whether they are exiting an existing deal or buying a property – as experts think there could be more mortgage rate increases.
David Hollingworth, associate director at L&C Mortgages explained: “Fixed rates have already been on the move and have climbed in recent weeks, often by 0.25% of a percentage point or more.
“That has driven fixed mortgage rates upwards, and all the UK high street lender rates are now back above 4%, with only Allied Irish Bank clinging onto anything below that.
“Those increases are due to the less optimistic forecast for interest rates and today’s figures will do nothing to change that.
“Although still expected to fall, the growing expectation has been for rates to fall more slowly and not as far as previously anticipated.
“Being at the upper end of expectation, today’s inflation figure will only harden that view, which could knock on to lender’s cost of funding.”
Hollingworth is advising borrowers looking for deals to ‘remain on their toes’, as mortgage lenders are repricing daily.
“There certainly isn’t the luxury of being able to hold off from committing to a deal and expecting it to still be there in a week or so, as rates continue to come and go quickly,” he said.
“It would be of little surprise if that trend continues and fixed rates are pushed higher on the back of today’s news.”
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