This morning’s announcement from the ONS has revealed that UK headline inflation has dropped to 6.8% in the year to July 2023. Good news on the face of it perhaps – as it follows last month’s rate of 7.8% – and means the second month in a row that the rate has dropped. But, troublesome core inflation has remained at 6.9% for the month, indicating that the UK’s battle with the ravages of inflation is far from over.
Top of the concerns list is that the latest inflation data isn’t enough to prevent the Bank of England’s MPC hiking base rates again at their September meeting from the current rate of 5.25% which was set earlier this month, to 5.5%.
The cost of borrowing, the fragile state of the economy and the cost of living crisis are having a major impact for mortgage and property experts and investors too.
Below are comments we’ve received from Mortgage and Property experts, as they digest what today’s inflation figures actually mean for the markets as follows:
Paresh Raja, CEO of Market Financial Solutions, said: “Another step in the right direction, with today’s CPI drop following on from the smaller-than-expected base rate hike at the start of the month. But it might be a case of two steps forward, one step back; all the talk this week has been that we are in for a shock rise in inflation when next month’s data comes out on 20 September. Given the Bank of England’s next interest rate decision follows the next day (21 September) that will likely prove a hugely important 48 hours.
“For now, we should allow some positivity to permeate back into the property and lending markets. After a challenging 18 months, any time inflation falls should be welcomed, and we could see such good news reflected in the products and rates available to property buyers. Still, lenders must double down on a proactive approach to supporting brokers and borrowers who will be feeling the effects of high inflation and consistent base rate hikes. In turn, lenders can help the market return to a more buoyant state.”
Simon Webb, managing director of capital markets and finance at LiveMore, the mortgage lender for the 50-90+ age group. commented: “Inflation falling by 1.1% to 6.8% is good news but there is still a long way to go to reach the government’s 2% target. Once again the main reason was the fall in energy prices but it is still high.
“However, core inflation is now higher than the main figure at 6.9%, which excludes the food and energy prices. Along with yesterday’s announcement of wages growing by a record 7.8% in Q2, it looks likely the next base rate decision will be another upward hike.”
Nicky Stevenson, Managing Director at national estate agent group Fine & Country said:
“House price growth is cooling, but today’s fall in inflation sparks hopes that the economy is turning a corner, and bolsters the chances of the property market experiencing a soft landing.
“The biggest barrier to sales is the cost of mortgages, but competition for borrowers has seen lenders drop rates in recent days, which may trigger another flurry of activity.
“The Bank of England may also be nearing the point where it presses pause on further base rate hikes, which would bring greater stability to mortgages and, in turn, promote more confidence in the property market.
“The resilience of the housing market can partly be attributed to a pool of motivated buyers who continue to bid for reasonably priced properties.
“Smaller homes in affordable locations close to major employment hotspots remain the most popular properties. Buyers are also searching for homes that have been sensibly priced, and these continue to attract a number of offers.”
Jatin Ondhia, CEO of Shojin, said: “It’s good news today, but there are strong rumours that next month’s data will show a rise in inflation once again. This story is far from over – Rishi Sunak and Jeremy Hunt’s target of bringing inflation under 5% by the end of the year is looking increasingly out of reach, and that will have implications on consumers, investors, businesses and the financial markets.
“Even with today’s fall, inflation remains high, and if indeed it does rise again next month, we have to expect the Bank of England to come hard with more interest rates hikes. As borrowing becomes more expensive, this will inevitably further impact house prices and property development. For investors, meanwhile, it is crucial they assess how well positioned their portfolios are to deliver returns amid stickier-than-expected inflation.
“Diversification will likely remain a watchword for investors. Predicting quite where interest rates and inflation will go in the months to come is difficult, so many people will opt to diversify their investments so they are not tied too closely to any particularly market forecasts.”
Adam Oldfield, chief revenue officer at Phoebus Software, says “Although it is in line with many predictions, it is good to see inflation come down below 7%. The hope was that it might get down to 5% by the end of the year, but there may be a couple of factors that will have had an effect when we see next month’s figure.
“Prices at the petrol pumps have been going up this month which, along with rising wages, has the potential to push inflation up again next month. With this in mind the Bank of England is highly unlikely to veer away from its current path, and another base rate rise is likely to be on the horizon. For the housing market and mortgagers in particular this would be another blow, especially when we are already seeing arrears increasing. The recent rate cuts on fixed rates has given a bit of hope for some I’m sure, but there seems no respite for those that now find themselves on SVRs. Lenders will need to be canny to meet their lending quotas in the last few months of the year as borrowers face the dilemma of whether to fix now or w
Ben Waugh, Managing Director at equity release lender, more2life, comments:
“Given the ongoing affordability pinch in the mortgage market, today’s ONS data showing slight rises in house prices will be met by happy homeowners and disappointed younger demographics. The UK housing market has demonstrated its ability to weather substantial headwinds in the past and we’re seeing the same resilience here, even against consecutive rises in the base rate. the current outlook is shaded by the consecutive increases in the base rate, and the reduced supply is unlikely to help matters.
“Times are challenging for new buyers and remortgagers but there are still options to consider. Residential mortgage lenders are actively managing their products to support borrowers as best as they can, as are providers in the later life lending sector. While both propositions are different, the one adage that holds true is that potential borrowers need to consider their options early rather than waiting until they are under pressure.
“Whether you are looking to support a younger member of the family as they get onto the property ladder or determine how you refinance your own borrowing as you hit older age, later life lending products offer a variety of different choices and need to be carefully considered.”
Kate Steere, deputy editor and housing expert at personal finance comparison site finder.com shares her thoughts on what this could mean for the housing market:
“I’m hopeful this fall in inflation could lead the Bank of England to pause its base rate hikes at the next MPC meeting. This could help provoke a mortgage price war amongst the big providers, resulting in some more competitive rate options finally hitting the market. This would give some much-needed relief to prospective buyers and mortgage holders in the UK.”
