August 14th, 2024
Recent reports show that UK inflation has risen slightly to 2.2%, following a period of gradual decline throughout the year.
Although this increase is modest and within the Bank of England’s target range, it may still have implications for your mortgage, especially if you’re self-employed.
What It Means for You
Inflation measures how much the prices of goods and services are rising, which in turn affects the purchasing power of your money.
Over the past year, inflation has generally been on a downward trend, allowing the Bank of England to maintain its base rate at a steady level after a series of increases in response to earlier inflationary pressures.
The base rate is a crucial tool the Bank of England uses to control inflation. By raising the base rate, the Bank can encourage saving over spending, helping to keep inflation in check.
However, with inflation currently close to the Bank’s target of 2%, the likelihood of another base rate hike is low, especially coming off a notable decrease at the start of August. That said, the recent uptick in inflation to 2.2% is a reminder of the ongoing economic uncertainties that could affect mortgage rates.
How Different Types of Mortgages Might Be Affected
As a self-employed individual, your mortgage may be impacted differently depending on whether you have a fixed, variable, or tracker mortgage:
Fixed-Rate Mortgages
If you have a fixed-rate mortgage, your interest rate—and therefore your monthly repayments—are locked in for a set period, making it immune to short-term changes in the base rate.
However, the cost of new fixed-rate mortgages is influenced by swap rates, which are based on expectations of future base rate movements. Given that inflation has remained relatively stable, and the base rate is unlikely to rise again soon, swap rates may not see significant changes.
Although, it’s always worth considering your options, especially if you’re approaching the end of your fixed term.
Variable and Tracker Mortgages
Variable and tracker mortgages are more directly tied to the base rate. While inflation itself doesn’t directly affect these mortgages, the relationship between inflation and the base rate means that any changes to the base rate would influence your repayments.
Following this month’s decrease to the base rate, many are expecting a continuing gradual decline as the year progresses, however nothing is set in stone. Keep in mind, the most recent decision to lower the base rate to 5% was a split decision amongst MPC members, 5 for and 4 against.
In summary, stay aware of base rate changes (or lack thereof) throughout the year, as this will directly affect what you pay.
What This Means for CMME Clients
For self-employed professionals, managing fluctuating income alongside financial commitments like mortgage repayments can be challenging.
At CMME, we specialise in working with self-employed individuals, understanding the unique challenges you face when it comes to securing and managing a mortgage.
With inflation now slightly above the target but the base rate showing its first signs of decline, this might be an opportune time to review your mortgage options.
If you’re currently on a fixed-rate mortgage nearing its end, or if you’re on a variable or tracker mortgage, it might be worth exploring whether a remortgage could provide better stability or cost savings in the future.
Our team at CMME is here to guide you through these decisions, ensuring that your mortgage aligns with both your current financial situation and long-term goals.
For personalised advice and support tailored to your unique circumstances click here to book in a FREE no obligation call with the team.