CPI Figures to Push Up Mortgage Rates

Written on 24 May 2023 by Ray Boulger

CPI Figures to Push Up Mortgage Rates

Although today's CPI figures show a fall to 8.7% the fall was less than expected and more worryingly core inflation increased from 6.2% to 6.8%. The comment in the minutes of the last MPC meeting that whether any further increases were needed in Bank Rate would depend on the data has now been comprehensively answered, leaving a debate only on whether 4.75% will prove to be the peak.

With many mortgage borrowers having fixed their rates for 5 years, and a few for longer, any further increases in Bank Rate will take a long time to have a material effect on many borrowers. A bigger more immediate impact will be in the commercial market, where many of the loans are Bank Rate trackers, and the impact on people thinking of moving home or buying for the first time.

This must have a negative impact on house prices, which is probably what The Bank would like to see, providing it doesn’t go too far, as it reduces people’s ability to trade up or use the equity in their home for consumer purchases. Also, some potential FTBs who are still able to afford to buy will have their confidence sapped.

The immediate impact of today’s inflation figures was a sharp rise in gilt yields, with, despite some of the initial increase having been reversed, at the time of writing, the 2 year up 21bp to 4.31% and the 5 yr up by 13bp to 4.11%. These increases follow several days of significant rises and over the last month gilt yields have risen by about 0.5%.

The knock on effect on higher swap rates, and hence fixed rate pricing, will feed through to the cost of fixed rate mortgages fairly quickly and so anyone within 6 months of their fixed rate ending, or planning to apply for a new mortgage, should talk to their whole of market broker asap to secure a rate or be prepared to sit it out for a few months in the expectation that rates start to fall later this year or early next.

Category:Ray Boulger