Mortgages fall behind as stubbornly high interest rates hit household finances
There is growing confidence amongst financial experts that the Bank of England Base Rate will be reduced at its next meeting, following surprising news this week from the Office of National Statistics.
Figures this week revealed that inflation fell to 1.7% in the calendar year to September, below the Bank of England’s 2% target and at its lowest for over three years.
More importantly for the Monetary Policy Committee, is the revelation that services inflation within the CPI metric fell to 4.9% - something the MPC has long suggested would influence decisions over base rate.
At the last meeting of the MPC, members voted 8-to-1 in favour of holding Base Rate at 5%, and suggestions of a reduction in November appear to now be well founded.
“Inflation data this week plays into the hands of the Monetary Policy Committee, with price rises seemingly cooling” says Olivia Harland, Senior Mortgage Consultant at Cleerly.
“While many have felt very confident that Base Rate would reduce before the end of the year, it would now seem likely that sequential rate cuts could be on the cards.”
Mortgage rates have fallen from their recent peaks with sustained headline-grabbing cuts across the market, however many lenders this month have either paused reductions or even increased rates slightly, ahead of October’s budget.
The housing market remains strong however, with property transactions in August nearly 10% higher than the same month in 2023, according to Propertymark’s housing report.
Average rents also increased to £1,295 in the year to September, up 8.4%, ahead of the October budget which has some landlords concerned over increased taxation.
Olivia Harland, Senior Mortgage Consultant
“Many landlords fear an increase in Capital Gains Tax in the October budget, which may explain the buoyant housing market as more properties are being sold instead of let” continues Harland.
“Zoopla figures from last week showed that of all properties for sale, 13% had previously been rented out, and with a general reluctance for landlords to add to their portfolio at the moment, it creates a perfect storm for rental inflation.”
With a continued exodus of landlords leading to a reduced number of properties on the rental market, renters face the double-edged sword of fighting over fewer properties with more prospective tenants, and then having to pay increased rents if successful.
“With the mortgage market continuing to gain traction, once we are over the bump of October’s budget, the outlook for potential buyers is looking positive” concludes Harland.
“Especially for those with complex income structures, who have more borrowing power via specialist brokers than ever before. The chance to get on the property ladder is more realistic than ever before for many of our clients.”
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