UK inflation increased to 2.9% in July, up from 2.6% in June, according to Office for National Statistics data, raising concerns about the trajectory of mortgage rates in the coming months.
The Consumer Price Index measure now sits further above the Bank of England’s 2% target, potentially delaying anticipated interest rate cuts and maintaining higher borrowing costs for property buyers and homeowners.
Market implications
Nathan Emerson, Chief Executive of Propertymark, said: “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.”
Several mortgage lenders have announced rate reductions in recent weeks, mirroring developments in specialist lending products, but industry analysts warn that sustained inflation could reverse this trend.
Energy and cost pressures
Rob Morgan, Chief Investment Analyst of Charles Stanley, part of Raymond James Wealth Management, said: “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.”
Morgan added that whilst many families could face renewed cost-of-living pressure, the risk of an inflation spiral appears limited due to a subdued jobs market restricting spending power.
Borrowing costs
Katy Eatenton, Mortgage & Protection Specialist of Eatenton Finance, said: “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.”
The inflation figure adds to broader market pressures affecting property transactions, including ongoing cost pressures in conveyancing services.
The Bank of England’s next interest rate decision will be closely watched by property market participants as inflation remains above target levels.
