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Sam Bennett

Sam Bennett

29 Jun 2023 Updated.


36 Read.

Mortgage Rates in UK Surge as Inflation Surprises, Prompting Forecasts of Interest Rate Hikes

Mortgage rates are on the rise as higher-than-expected inflation figures have raised forecasts of potential mortgage rates in UK. Several lenders have already increased the cost of new mortgage deals, with Nationwide being the most notable, raising rates by up to 0.45 percentage points.

This development follows market expectations that the Bank of England may need to raise interest rates more significantly than previously anticipated.

However, the current situation is less chaotic compared to the response seen after last year’s mini-budget.

Official data revealed that UK inflation in April was lower than anticipated, standing at 8.7%. However, core inflation, which excludes volatile factors like food and energy, reached a 31-year high.

This unexpected inflation has led to significant market reactions, with recent days described as “pretty tumultuous.”

Experts now believe that the Bank of England may need to raise interest rates from their current level of 4.5% to as high as 5.5%.

These revised expectations have caused substantial movements in bond markets, leading to an impact on mortgage rates. Home loan pricing relies on swap rates, which have increased due to the changing market conditions.

Luke Hickmore, Abrdn’s fixed income investment director, noted the inflation data’ surprise and market fears. He predicted that inflation would effect mortgage and borrowing rates in the future.

Some homeowners are seeing hefty monthly payment hikes due to increased mortgage expenses. Robert, a Hertfordshire teacher, said he and his wife would have to pay £500 more for their mortgage.

Robert needs a second job to pay the bills. Borrowers are considering longer-term mortgage rate fixes as rates rise.

Mixed Views on Interest Rate and Mortgage Rates in UK Increases

Mortgage Rates in UK

Even if it causes a recession, Chancellor Jeremy Hunt supports boosting interest rates to contain rising costs and inflation.

However, analysts like Mohammed El Erian, chief economic consultant at Allianz, stress that government actions are needed alongside interest rate rises.

They claim that the Bank of England’s efforts alone won’t prevent a recession and that productivity, supply chain, and labor market improvements are needed.

Rising prices and mortgage rates in UK, driven in part by higher food bills, have affected various sectors. However, Simon Roberts, CEO of Sainsbury’s, stated that supermarkets have not used high inflation rates as an opportunity to generate higher profits.

Supermarkets, including Sainsbury’s, have witnessed increased sales as part of a broader rebound in retail activity.

The Office for National Statistics reported a 0.5% rise in sales volumes in April, following a decline in March due to adverse weather conditions.

Multiple lenders have increased mortgage rates in response to the inflation figures. Nationwide, the UK’s largest building society, raised rates to ensure sustainability. Lloyds and Halifax have also implemented rate increases recently.

Higher-than-expected inflation figures have triggered an increase in mortgage costs, causing lenders to raise rates on new deals. This development has raised concerns about potential interest rate hikes by the Bank of England.

Homeowners are already feeling the impact of rising mortgage payments, prompting them to seek alternatives. The response in the market has been notable but less chaotic compared to previous events.

As the mortgage rates in UK continues to unfold, homeowners and industry experts closely monitor interest rate movements and await potential policy changes from the Bank of England.

Mortgage Rates in UK Surge as Inflation Surprises, Prompting Forecasts of Interest Rate Hikes