Blow for borrowers as inflation rate climbs

Homebuyers have been dealt a blow after official data shows the rate of inflation increased to 2.9% in July.

Office for National Statistics (ONS) data shows the Consumer Price Index measures of the cost of living is up from 2.6%.

This puts the inflation rate further above the Bank of England’s 2% target and could dash hopes of an imminent interest rate cut, meaning the cost of borrowing could stay higher for longer.

This news may bring a renewed level of concern to many individuals and families.”

Nathan Emerson (pictured), Chief Executive of Propertymark, says “This news may bring a renewed level of concern to many individuals and families, especially over the coming months regarding household outgoings.

“Significant fiscal uncertainty, both in the UK and globally, including concerns on energy prices over coming months, is potentially likely to keep inflation rates above pre-2021 levels for now, continuing to potentially impact affordability for existing homeowners and prospective buyers as the year progresses.”

Mortgage lenders have announced a number of rate reductions in recent weeks, but experts warn a renewed rise in inflation could see mortgage rates rise again.

Higher bills

Rob Morgan, Chief Investment Analyst of Charles Stanley, part of Raymond James Wealth Management, says: “A summer lull in inflation may prove short-lived as simmering tensions in the Persian Gulf threaten global energy and food markets.

“Households may therefore need to be on their guard for higher bills and more expensive shopping baskets in the second half of the year.

“For many still recovering from previous inflation shocks, escalating costs make it challenging to improve living standards or build a financial buffer.

“While many families could yet face a reprise of the cost-of-living squeeze for a period, the risk of an inflation spiral appears limited. A subdued jobs market is restricting spending power, dampening the demand that could sustain rapid price rises.”

Cost of borrowing

Katy Eatenton, Mortgage & Protection Specialist of Eatenton Finance, says: “Inflation rising is bad news for borrowers and could result in higher mortgage rates if prices continue to head north in the months ahead.

“Rates have been coming down in recent weeks, with major lenders such as the Nationwide and Halifax both announcing cuts over the past week, but that momentum may now be lost.”