Our Blog
How could the recent rise in the headline rate of inflation affect mortgages?
No impact on your credit score
4 mins
Updated: Nov 29 2024
4 mins
Updated: Nov 29 2024
Please be aware that by following any external links you are leaving the Haysto website. Please note Haysto nor HL Partnership Limited are responsible for the accuracy of the information contained within external websites accessible from this page.
On this page
UK inflation rose steeper than expected in October to 2.3%*, up from 1.7%* the previous month. This unexpected rise took inflation back above the 2%** target set by the Government and to its highest level for six months, but it is still well below its most recent peak of 11.1%* in October 2022.
Was this just a bump in the road? Or is it an indicator of more testing times ahead? And what could all this mean for mortgage holders?
*Source: Office For National Statistics (ONS) / **Source: Bank Of England
Over the last few years, inflation has proved to be a much more volatile beast and difficult to contain—not just in the UK but across the globe—and the extent of this latest rise surprised many market experts.
However, there were some clear signs that this sudden jump could happen, not least of which was the rise in energy prices, particularly electricity and gas, following the 10%* adjustment of the energy price cap in October.
*Source: Ofgem
The Labour Government’s first Autumn Budget Statement could also have been a factor (Budgets have often caused ripples in the inflation data that follows them). It’s uncertain how the measures announced in the Budget could play out, particularly the large increase (£26 billion*) in employer’s national insurance contributions and how this might be passed onto the wider economy.
*Source: Chartered Institute Of Taxation
When inflation increases, the Bank of England, like all other central banks, will often raise its base rate to curb price growth by making borrowing more expensive—including mortgage rates—and encouraging saving.
At its last committee meeting on the 7th of November, the Bank Of England chose to reduce its base rate for just the second time this year by 0.25% from 5% to 4.75%. Following this meeting, the Bank’s governor, Andrew Bailey, suggested that future rate cuts would be much more gradual than they had been in the past.
Despite these words of caution, the rate cut was very welcome news for millions of mortgage holders in the UK, who’ve had a rough ride with their repayments over the last few years during a cycle of rising interest rates following the COVID-19 pandemic.
There’s no indication that the Bank’s cautious strategy will change in light of the latest inflation figures. However, if the inflation rate keeps climbing, it could eventually result in a rise in the base rate to bring it back under control.
This would then immediately impact repayments for variable-rate mortgages, such as tracker mortgages, and also mean the cost of borrowing will increase for anyone looking to buy a property or remortgage.
It’s worth remembering that, despite its recent jump, the current inflation rate is a long way from its most recent high of 11.1% two years ago. Since then, both the previous and current UK governments have made keeping inflation low one of their key economic goals.
Inflation hasn’t stayed below the 2% target rate for longer than two months in 2024. Rather than looking to raise its base rate to keep inflation below this level, it could simply mean that the Bank Of England will revise how often and when it looks to make any further cuts during 2025.
If you're an existing homeowner looking to remortgage or move home in the next twelve months and worried about the possible impact of rising inflation on mortgage rates, you can talk to us! Our Mortgage Experts can offer guidance and advice if you’re concerned about what options you’ll have available.
Just make an enquiry, and a member of our mortgage team will be in touch.
Let's Get Started
We Make Mortgages Possible
Our Mortgage Experts are fully qualified with experience in bad credit, self-employed and complex mortgages. They have a proven track record of getting mortgages for people who’ve been rejected elsewhere.
Get Started Now Get Started NowWe make mortgages possible. Bad credit? Self-employed? Complex situation? No problem. You’re in the right place. We get it, and we can help.
Try it FREE for 30 days, then £14.99 a month - cancel online anytime.
Information
Tools & Guides
Haysto Ltd is an appointed representative of HL Partnership Limited which is authorised and regulated by the Financial Conduct Authority. Registered Office: Haysto, Crystal House, 24 Cattle Market Street, Norwich, NR1 3DY. Registered in England and Wales No. 12527065
The guidance and/or information contained within this website is subject to the UK regulatory regime and is therefore targeted at consumers based in the UK.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Talk to our Mortgage Experts to find out your options