Markets brace for rate rises as inflation jumps

Financial markets are now anticipating two interest rate hikes before the end of the year following a jump in inflation.

The latest data from the Office for National Statistics (ONS) shows the consumer prices index (CPI) jumped from 3.1% to 3.5% between August and September.

Petrol prices were the main driver but analysts such as AJ Bell are warning that this could mean interest rates are more likely to go up before the end of the year.

This could push mortgage rates up higher.

Every fluctuation has the potential to raise affordability concerns for many households and influence confidence across the wider housing market.”

Sarah Coles, Head of Personal Finance for AJ Bell, says: “The mortgage market is under the cosh right now, with rates continuing to climb. They were already up significantly since the start of the Iran war, but have shot up even faster over the past few weeks as the prospect of peace continues to feel remote.

“It’s having a significant impact on affordability, which has dampened demand for property during what should have been the autumn rush. This news was widely expected, and rate rises priced in, so it isn’t likely to move the fixed rate market particularly. Rates may still rise though if we get more global instability.

“Some people will be wondering whether to fix or opt for a variable rate in the hope it comes down. Because the future is so difficult to forecast right now, it comes down to how much you value certainty.

“The mortgage is often a household’s biggest monthly expense, so some people will need to have complete certainty over what it will cost for the next few years so they can plan on a tight budget, and they’re prepared to pay a premium for it. Others have the financial flexibility to adapt on a variable rate deal, and they’re prepared to run the risk of paying more later.”

Finely balanced

Nathan Emerson (pictured), Chief Executive of Propertymark, says: “We remain in a finely balanced economy, where every fluctuation has the potential to raise affordability concerns for many households and influence confidence across the wider housing market.

“Over the past few weeks, we have seen several lenders withdraw what were previously considered more competitive mortgage offerings, highlighting how quickly conditions can change for those looking to buy a property or secure a new mortgage deal.

“While base rates have remained steady since late last year, many households have continued to face significant financial pressures, with rising energy costs and increasing prices on the weekly shop adding to the strain on household budgets.

“With the Autumn Budget now only a week away, expectations will be high regarding any measures that may be announced to address housing and overall household affordability moving forward. Any decisions affecting taxation, housing supply or the cost of living could have wider implications for consumer confidence and activity across the property market.”