Will the recent inflation figures trigger an increase in mortgage rates soon?
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Inflation of 3.7% is concerning. Is now the time to remortgage into a fixed rate deal?
Richard
1 year ago
Expert Financial Adviser Answer
Darren Smith
answered 1 year ago
the price of mortgages is more closely linked to swap rates which are an indication of the cost of borrowing money between banks at a given time in the future or for a given period.
if rates went up just because of inflation, they would have risen last year but in fact we now have some of the best rates available at the moment when compared to the last 18 months.
there will always be profiteering from lenders, banks and building societies, as they have to shore up their capital reserves but often when a lender offers a really good deal its because they want to buy market share more cheaply than by buying a rival lender and when they put the rates up it can be because they cannot cope with the influx of new business or are trying to squeeze even more from the borrowers.
this week alone, for each email notice of a lender increasing rates i have had one informing of reductions.
the reality of inflation is that it is an arbitrary measure of the average change in price of a set basket of goods, it is highly unlikely that you consume all of those goods as the list includes over 600 items and if for example you are a non smoker non drinker and non car owner, many of the listed items wont impact on you at all.
you can see a full breakdown of the last CPI review here:
http://www.statistics.gov.uk/pdfdir/cpi0111.pdf
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if rates went up just because of inflation, they would have risen last year but in fact we now have some of the best rates available at the moment when compared to the last 18 months.
there will always be profiteering from lenders, banks and building societies, as they have to shore up their capital reserves but often when a lender offers a really good deal its because they want to buy market share more cheaply than by buying a rival lender and when they put the rates up it can be because they cannot cope with the influx of new business or are trying to squeeze even more from the borrowers.
this week alone, for each email notice of a lender increasing rates i have had one informing of reductions.
the reality of inflation is that it is an arbitrary measure of the average change in price of a set basket of goods, it is highly unlikely that you consume all of those goods as the list includes over 600 items and if for example you are a non smoker non drinker and non car owner, many of the listed items wont impact on you at all.
you can see a full breakdown of the last CPI review here:
http://www.statistics.gov.uk/pdfdir/cpi0111.pdf
Expert Financial Adviser Answer
Paul Ross DipPFS CII(MP&ER)
answered 1 year ago
I regularly attend meetings which involve economists and the overall view is that they will stay low for sometime as any increase in interest rates will ensure house prices will fall further and businesses will continue to struggle. The coalition govt will win to plaudits for doing this and an increase would increase inflation slightly as increasing interest rates has a knock on on retail prices
I'm advising my clients to stay with tracker rates for the time being
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I'm advising my clients to stay with tracker rates for the time being
Expert Financial Adviser Answer
Dr David Carter FPFS
answered 1 year ago
I agree with the other two contributors here. There is, indeed, some upward pressure on swap rates, and the indication is that some of the better fixed rate deals could be withdrawn, to be replaced by slightly (and I stress the word slightly) higher rate fixes.
It is not just inflation which influences interest rates; it is the state of the economy, jobs and confidence in general that do so as well. For instance, if interest rates rise then the pound will become more attractive and will strengthen against other economies. A stronger pound means that overseas purchasers have to pay more for our exports (which are priced in pounds) - so the export trade might be damaged.
We might all be wrong, and an increase in base rate is just around the corner. If so, I am certain that the increase will be a small one.
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It is not just inflation which influences interest rates; it is the state of the economy, jobs and confidence in general that do so as well. For instance, if interest rates rise then the pound will become more attractive and will strengthen against other economies. A stronger pound means that overseas purchasers have to pay more for our exports (which are priced in pounds) - so the export trade might be damaged.
We might all be wrong, and an increase in base rate is just around the corner. If so, I am certain that the increase will be a small one.
