Financial markets are anticipating two interest rate increases before the end of the year following a rise in inflation from 3.1% to 3.5% between August and September, according to the latest Office for National Statistics (ONS) data.
The consumer prices index (CPI) jump was primarily driven by petrol prices, with analysts warning that mortgage rates could climb further as a result of potential base rate adjustments.
Impact on mortgage market
Sarah Coles, Head of Personal Finance for AJ Bell, said the mortgage market is experiencing upward pressure on rates, which have risen significantly since the start of the Iran conflict and accelerated in recent weeks. “It’s having a significant impact on affordability, which has dampened demand for property during what should have been the autumn rush,” Coles said.
The development comes as UK house price growth has slowed for the fourth consecutive month, reflecting broader market uncertainty.
Coles noted that whilst the inflation data was widely expected and rate rises already priced into fixed rate products, further increases remain possible if global instability continues. She added that borrowers face a decision between fixing rates for certainty or choosing variable products with the potential for future reductions.
Market conditions
Nathan Emerson, Chief Executive of Propertymark, described the current economic environment as “finely balanced” with fluctuations raising affordability concerns and influencing confidence across the 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,” Emerson said.
He noted that despite base rates remaining steady since late last year, households continue to face pressure from rising energy costs and increasing food prices. The comments come as market observers note declining property listings in some segments, suggesting caution among potential sellers.
Budget expectations
With the Autumn Budget scheduled for the following week, industry professionals are watching for measures addressing housing and household affordability. Emerson indicated that decisions affecting taxation, housing supply or cost of living could have wider implications for consumer confidence and property market activity.
The mortgage market response to inflation data will be closely monitored by property professionals as borrowers navigate decisions on financing options amid economic uncertainty and evolving lending conditions.
