Inflation increased to 2.3% in the year to October to reach its highest level for six months, triggering fears that mortgage rates may follow suit.
Although an increase from September’s 1.7% rate was expected, October’s jump was higher than many commentators had anticipated. Steeper energy costs were behind the rise in the Consumer Prices Index (CPI) measure of inflation, with fears that Budget changes announced last month could lead to further increases in the costs of goods and services going forward.
David Hollingworth, Associate Director at L&C Mortgages said, “That will pour more cold water on the prospects for another cut to base rate to come next month, which will be disappointing news for those on a variable or tracker rate mortgage.
“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.”
What should borrowers do?
Barclays, Santander, NatWest, TSB and Nationwide are among the lenders who have raised their fixed rates recently, making it more important than ever for homebuyers and those looking to remortgage not to hang around if they spot a competitive deal.
Higher than expected inflation makes it less likely that we’ll see further base rate cuts imminently.
Mr Hollingworth said: “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.
“Borrowers will therefore need to remain on their toes, as mortgage deals are still in something of a state of flux and lenders are repricing regularly. 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.”
You can usuallysecure your next mortgage deal between three and six months in advance, and ourfree Rate Check service can provide valuable peace of mind if you’re worried about locking into a fix at the wrong time. The service allows you to sign up to a deal now, protecting you against any future potential increases, but enables you to review rates at any time until you make the final switch.
That means if interest rates do reduce in coming months, you can review your mortgage at that point and move to a better deal if one becomes available.
