Strong Inflation Costs Causing Mortgage Costs To Rise

• Stronger than expected inflation figures causing mortgage costs to rise
• Nationwide said mortgage rates on new fixed deals would rise by up to 0.45 percentage points to ensure they 'remain sustainable'
• Industry expert David Hannah, Chairman of Cornerstone Group International, discusses the effect of rising rates on the property market

The Nationwide building society has said that mortgage rates on new fixed deals would rise by up to 0.45 percentage points as despite inflation falling, it still remains higher than many analysts were predicting. The Office for National Statistics (ONS) revealed that Britain recorded the sharpest fall in inflation since August, with a drop in the annual rate to 8.7% in April. It marked a decline from 10.1% in March, as UK inflation peaked at 11.1% in October. According to the data from the ONS, electricity and gas prices contributed about 1.4 percentage points to the fall in the annual inflation rate.

Nationwide said it was putting up its mortgage rates to ensure they 'remain sustainable' as markets now think the Bank will have to raise rates to as high as 5.5% from the current 4.5% which is set to affect mortgage rates around the UK. The average two-year fixed-rate mortgage on the market has a rate of 5.34% with the average five-year fix being 5.01% according to Moneyfacts. 

The Bank of England hiked interest rates by 0.25 percentage points earlier this month - pushing the benchmark rate to 4.5% up from 4.25% - representing the twelfth consecutive rise since December 2021. It means that a typical mortgage holder on the standard variable rate has seen their monthly bills increase by £35 according to AJ Bell. The rise will be even stronger for the 1.5 million households with fixed mortgage deals set to expire this year. Homeowners with an average 2.58% fixed rate available in 2021 will see their mortgage payments increase by £13,000 a year if they have a £250,000 loan.

David Hannah, Chairman at Cornerstone Group International, discusses the effect of rising rates on the property market: 
 
“The rise in mortgage rates due to inflation figures being stronger than expected is not welcome news for homeowners and in particular first-time buyers. However, I think that the housing market has shown huge resilience recently and I believe the outlook for the rest of the year to be positive. Prices are starting to stabilise which will start to give lenders confidence, of course they will adjust rates accordingly with interest rates, however if they see that inflation is going in the right direction, that will be key.

“Buyers have a lot more available properties to choose than in previous years, thanks to an increase in supply which will cause less bidding wars and hopefully a more welcoming environment for first-time buyers, which makes for a much healthier market.”

Source : Cornerstone Group International

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