February 19th, 2024
The new year began with a surprising uptick in the UK inflation rate, rising to 4% over December 2023, largely in part due to increased alcohol and tobacco costs.
Whilst the year started with a collection of competitive mortgage rates, we are now starting to see them increase, marking a shift from the previous trend of declining borrowing costs.
What’s happening in the market?
Nationwide, the largest building society in the country, disclosed that its mortgage rates would climb by up to 0.25 percentage points on Tuesday. This announcement was followed by similar moves from lenders like Halifax and TSB, who also indicated rate hikes on certain products.
These decisions from lenders come in the wake of the Bank of England’s decision to maintain its base rate at 5.25 per cent earlier this month. However, concerns over Wednesday’s inflation figures seem to have contributed to a construed outlook at the year ahead.
Annual inflation up to December rose to 4 per cent from 3.9 per cent in November. Initial fears of a potentially higher figure for January led some lenders to increase rates pre-emptively to protect themselves.
However, the published data on Wednesday 14th February revealed that the rate remained steady, offering relief to homeowners.
Key Point Summary:
Factors Influencing Mortgage Rates: Mortgage rates are closely linked to swap rates, influenced by the Bank of England’s base interest rate and inflation. The idea is that maintaining a high base rate will help curb the rate of inflation, thus reducing borrowing costs in the long run.
Impact of Inflation: Inflation directly affects the swap rates charged to lenders, subsequently influencing the mortgage rates they offer.
While the Bank of England aims to control inflation by adjusting its base interest rate, recent months have seen it maintain a relatively high rate, resulting in higher mortgage costs for homeowners.
Wednesday’s Inflation Figures: The stable inflation rate in January offered temporary relief to homeowners, but various factors influence the Bank of England’s decision-making regarding interest rates.
Advice for Homeowners: With the market’s volatility, homeowners on variable rates or nearing the end of fixed-rate terms may be considering their options.
Exploring alternatives like tracker rates could provide a middle ground between fixed and variable rates.
Impact on House Prices: Despite rate uncertainties, brokers emphasize the resilience of the housing market.
While some regions experience fluctuations in house prices, overall demand remains robust, with indications of market activity picking up.
While the mortgage market experiences fluctuations, homeowners are advised to assess their options carefully amidst the evolving landscape.
Despite challenges, the housing market shows resilience, driven by sustained demand.
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