In the UK housing market, we’ve been witnessing a cycle of increasing mortgage rates over the past month. And guess what? This morning brought even more excitement as the official inflation figures exceeded expectations!
Believe it or not, the Consumer Prices Index in the UK rose by a remarkable 8.7% in the year leading up to May. That’s the same as April, but still, quite a leap! But wait, there’s more. The Core CPI, which excludes the unpredictable elements like energy, food, alcohol, and tobacco, soared to 7.1%, the highest it has been since 1992!
As a result, mortgage rates have been steadily climbing in the past four weeks. Just a couple of days ago, the average two-year fixed rate mortgage surpassed 6%, up from 5.34% only a month ago. It’s difficult to predict the extent of future increases, but we’ll have to wait and observe how the market reacts. One thing is certain, though – mortgage rates won’t decrease until the Core CPI shows signs of improvement.
Now, let’s turn our attention to the Bank of England. They are faced with a significant decision. Tomorrow, at their Monetary Policy Committee (MPC) meeting, it’s highly likely that they will raise interest rates. With the latest inflation figures from May, there has been a 0.5% increase, bringing the base rate up to 5%.
According to Paul Dales, the chief UK economist at Capital Economics, there’s even a possibility that rates may need to be raised further, surpassing 5.25%, in order to address the core inflation issue. Exciting times ahead, isn’t it?
Now, here’s something important to consider. Around 1.4 million people will need to remortgage this year, and the majority of them are currently enjoying rates below 2%. That’s a significant number! Additionally, in 2024, another 1.6 million deals will come up for renewal. So, you can imagine how crucial this topic is.
To address these concerns, major lenders will be meeting with Chancellor Jeremy Hunt on Friday to discuss ways to protect borrowers. However, let’s be realistic. The government has limited power to intervene, as the financial impacts of rate hikes are inherent to the system rather than a flaw.
But hey, let’s not get too worked up! Despite all the buzz around the so-called “mortgage time bomb,” the likely outcome will be a slowdown in transaction activity. The good news is that repossessions and forced selling will remain relatively low compared to previous downturns. That’s because regulations have been put in place since the financial crisis to safeguard borrowers.
So, let’s stay positive and keep a close watch on how things unfold. Together, we will navigate through these changes in the housing market!
