Inflation rates have fallen at a faster rate than predicted in June, offering a glimmer of hope for mortgage holders due to renew their deals that their monthly repayment increases will be less than feared. The Consumer Prices Index Inflation was 7.9% for June, falling from 8.7% in May. This is the lowest level of inflation in the UK for more than a year.
The Office for National Statistics (ONS), who publish the figures, commented: “The easing in the annual inflation rates in June 2023 principally reflected price changes in the transport division, particularly for motor fuels.”
It continued: “There were also notable downward effects from food and non-alcoholic beverages, furniture and household goods, and restaurants and hotels. There were no large offsetting upward effects.”
This means that although UK inflation rates are still well above the Bank of England’s (BoE) target of 2%, it is still well above the US rate (3%) and also the Eurozone (5.5%), and remains the highest level of inflation in the G7 group of developed countries. In an effort to curb inflation, the BoE has made a series of interest rate rises.
At the beginning of 2021, interest rates were at record low levels of near 0%, and have since risen steadily to the current level of 5%. This has meant that the interest rate on mortgages has correspondingly risen, and householders who are renewing their mortgage deals in the coming months will be facing steep increases.
Mortgage rates are currently at the highest level since the financial crisis in 2008, even higher than the spike caused by the Treasury’s disastrous mini-budget last September. The average two-year fixed rate mortgage is now around 6.78%, while the average five year fixed rate is around 6.23%.
However, the BoE is likely to cap interest rate rises at 5.5% rather than 6% or more that was previously predicted by financial analysts. This means that mortgage rate rises will be slightly lower than they might have been. Although it is still a difficult time for many, this slight easing of the financial strain will still be welcome.
The Chancellor Jeremy Hunt was questioned about his opinion on BoE interest rate rises. He commented: “What we have seen is the Bank has taken very difficult decisions and the Government has taken very difficult decisions in the autumn statement to make sure that we really do start to bring down inflation.”
He added: “We are seeing the first fruits of that but there’s a long way to go and we need to remember that families are still feeling a lot of pressure with very high food price inflation. Although fuel prices have come down, they’re still significantly higher than they were a few years ago.”
Mortgage holders who are concerned about their ability to afford monthly payment increases when they renew their mortgage deal are advised to seek the assistance of an experienced broker.
If you are looking for IVA mortgage brokers, please get in touch with us today.
Your home may be repossessed if you do not keep up with your mortgage repayments.
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