Is the inflation under control? Inflation and UK Mortgages

Host: A lot of our clients are asking whether mortgage rates have come down now that inflation is under control. Before we dive into that, I’m Pradeesh, and you’re watching Let’s Talk Mortgages.

Today, we’re joined by Ifthikar Muhammad, a mortgage adviser with over a decade of experience in the industry.

Q&A: Inflation and Its Basics

Pradeesh: Can you tell us what exactly inflation is?

Ifthikar Muhammad: My economics master taught me that inflation is “too much money chasing too few goods.” That’s the textbook definition. But in layman’s terms, inflation simply means the cost of goods and services is going up—and the rate at which it rises is what people really pay attention to.

For example, if today you pay £100 for electricity and tomorrow you pay £150, that would represent a 50% increase. Usually, inflation is measured across a basket of goods, including electricity, gas, food, petrol, and other essentials. The cost increase of this basket is what we call the inflation rate.

Pradeesh: That makes sense. I recently went grocery shopping and noticed my bill for the same items had gone up. That’s inflation in action.

Q&A: How Inflation Impacts the Economy and Mortgages

Pradeesh: How does inflation affect the economy and the mortgage industry?

Ifthikar Muhammad: Inflation has a significant impact:

• Reduced Spending Power: If your monthly expenses, like electricity, go up, you have less money to spend elsewhere. This makes it harder to save for a house or other financial goals.
• Impact on Savings: If your income doesn’t rise at the same pace as inflation, your real income decreases, forcing some people to dip into savings.
• Connection to Interest Rates: Central banks use interest rates as a tool to control inflation. High inflation usually leads to higher interest rates, which affects mortgage costs.

Q&A: Current Inflation and Interest Rate Situation

Pradeesh: There was a time when inflation was around 10%, and mortgage rates were 6–7%, making it difficult for people to manage their payments. What is the inflation rate now, and how do mortgage rates look?

Ifthikar Muhammad: The good news is inflation is now at 2%, which aligns with the government’s target. Previously, in October 2022, it peaked at 11.2%.

If inflation remains under control, we could see mortgage interest rates start to drop. Currently, interest rates are around the 5% range, and if inflation stays stable, more mortgage deals under 5% may become available.

Q&A: Predictions for Interest Rate Drops

Pradeesh: Many clients are asking whether interest rates could come down by August, especially those whose remortgage deals end around August or December. Do you think that’s possible?

Ifthikar Muhammad: It’s difficult to predict because interest rates are decided by the Bank of England committee. However, if inflation stays on target, there’s a good chance rates could start dropping.

Even the money markets, which influence the rates banks lend to customers, may cause a downward trend even before official Bank of England cuts. Inflation will be crucial to watch in the coming weeks.

Q&A: Advice for Getting a Mortgage

Pradeesh: What is your advice for people looking to get a mortgage right now, whether it’s their first home, moving, or remortgaging?

Ifthikar Muhammad: It depends on individual needs:

• If someone has to move house, they have no choice but to proceed.
• Currently, house prices are relatively stable due to high interest rates, but if rates drop, prices may rise.
• Generally, the best time to buy is now, but professional advice is important as there’s no one-size-fits-all solution.

Pradeesh: Thank you, Ify, for sharing this valuable information. I’m sure it will help our viewers make informed decisions.

If you need mortgage advice, contact us via the details in the description, your own mortgage adviser, or your bank.

This is Pradeesh signing off from List Off Mortgages. Don’t forget to like, subscribe, and comment below.