Analysts assert that today’s inflation data has a decisive impact on the housing market trajectory for the remainder of the year, including the vital capital appreciation that landlords heavily rely on.
This assessment comes in response to the news of a more significant slowdown in the rate of price increases across the UK in the 12-month period ending in June, surpassing initial forecasts. While experts anticipated a decrease in the “headline rate” from 8.7% to 8.2%, the actual rate declined to 7.9%.
The significant decline in motor fuel prices had the most significant negative impact on the monthly change, while food prices experienced a moderate increase in June 2023, although less compared to June 2022, resulting in a reduction in the overall inflation rates.
The implications of this decline on the expected rise in the Bank of England base rate next month, marking the 14th consecutive increase, remain uncertain. Prior to the release of today’s figures, analysts generally held a pessimistic outlook.
Bob Singh, the founder of Chess Mortgages, states: “The inflation figures for this month hold great importance for the property and mortgage markets. With stubborn inflation, we are eager for it to follow the downward trend observed in the US, where rates decreased last week, leading to a slight decline in swap rates.”
“Although we have witnessed a slight decrease in inflation, the challenges persist. The looming threat of wage inflation and upcoming Christmas spending add to the uncertainty. It is evident that the strategy of raising interest rates to stimulate a recession has not yielded the desired results thus far. With impending elections, the Conservative leaders will likely resist any attempts to increase taxes. Maintaining an inflation rate below 7.0 per cent would be beneficial in avoiding or postponing further rate hikes that are already impacting the housing market.”
Ross McMillan, the owner of Blue Fish Mortgage Solutions, shares the sentiment. He remarks, “The significance of the inflation data has reached a point where it serves as the primary indicator of concern for both the government and the Bank of England. The figures released this week could shape the trajectory of the UK property and mortgage markets for the remainder of 2023.”
“If the figures disappoint, we may be in for a challenging period ahead, and the coming months could be cause for concern. However, if we observe a similar downward trend as seen in the US, although there may still be turbulence, this could offer some hope to mortgage holders. The relentless pressure from the Bank of England in recent months may ease up enough to provide borrowers with a momentary respite.”
Jamie Lennox, a director at Dimora Mortgages, adds, “This week’s data will determine the fate of millions of mortgage holders who are already struggling to stay afloat. The previous month’s data had significant implications for mortgage rates, and if the upcoming release fails to meet the anticipated targets, we could witness further instability in the mortgage market, with long-term consequences for the stability of the housing market.”
According to Sarah Coles, head of personal finance at Hargreaves Lansdown, it is anticipated that headline inflation will experience a slight decrease in the upcoming figures. However, core inflation is expected to remain stable. It should be noted that the projected decline in overall inflation is not guaranteed, as a similar forecast last month failed to materialize.
While there was a significant drop in petrol prices in May, the rate of decline has slowed considerably. Additionally, utility bills remain unaffected by the energy price cap. Although their inflation rates will be significantly lower compared to the previous year, the monthly changes are less encouraging.
There has been a slight easing in food inflation, and supermarkets are expressing optimism about lower inflation starting to impact prices in the coming weeks and months. Nevertheless, it is still anticipated that high prices will contribute to inflation in June.
The prospect of a significant decrease in both headline inflation and core figures remains slim, which is unlikely to impact rate expectations. The release of wage inflation data in July will weigh on the minds of the Monetary Policy Committee (MPC), who aim to demonstrate their commitment to controlling inflation. It is highly probable that a rate hike will occur during the Bank of England’s August meeting.
For those with variable mortgages, rates are expected to rise in line with the Bank’s decision. This poses a challenge for individuals who opted for the standard variable rate, hoping for quick rate reductions to make fixed-rate mortgages more affordable. Meanwhile, fixed-rate deals are already increasing as rate expectations remain strong. This trend is likely to continue as long as there are indications of persistent inflation.
The only potential relief would come from an inflation rate lower than expected.
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