November 15th 2023 brought the news that the inflation rate had fallen to 4.6% – the lowest it’s been since November 2021. But what does this mean for mortgages?
Our team of qualified mortgage experts are here to help. Read on to find out what this inflation rate change can mean for your first time buyer, buy to let or shared ownership mortgage.
In this blog post we will cover various topics, including:
- What is the inflation rate?
- Why does the inflation rate affect mortgages?
- Find out how the inflation rate could affect your mortgage
What Is The Inflation Rate?
The inflation rate is the term used to determine how much more expensive goods and services became over a certain period, typically a year. The faster and higher the inflation rate increases can signal an overheated economy. As economic growth accelerates, the demand for goods increases, forcing producers to increase their prices to keep up with demand.
Inflation, essentially, is the cost equated to the supply and demand of produce across the country. It’s worth noting that the inflation rate is often directly related to the base rate.
What’s The Connection Between Base Rate & Inflation Rate?
If inflation was to rise, then to counteract that, the base rate would also increase. In an ideal world, you want inflation to stand steady, however, if inflation rises too rapidly this is when the Bank of England will come in to raise the base rate. The base rate is used to calm down inflation, whether it increases or decreases.=
If inflation was to increase too rapidly, the base rate would also increase. If the inflation rate was to drop, then the base rate would also follow suit.
You can find out more about the base rate changes we’ve had this year in our recent blog posts:
- ‘March’s base rate increase and what it means for you’
- ‘Base rate increases to 5% – what this means for you’
- ‘August 2023 interest base rate rising – how can this impact you?’
- ‘Looking ahead to Mortgage rates in 2024’
Why Does The Inflation Rate Affect Mortgages?
The inflation rate can have a direct effect on mortgages, as mortgage lenders will often change their fixed mortgage rates, based on the Bank of England base rate. This is because, as the base rate increases, the amount of money it costs banks and mortgage lenders to loan you money also increases. These prices are often passed onto the end consumer.
If the reduced inflation rate has a positive effect on the base rate, you could see your mortgage decrease, depending on your mortgage type. Unless you’re on a fixed-rate mortgage, you could see a decrease in your monthly repayments. Find out more about the different types of mortgages in our blog post: ‘A complete guide to UK mortgage types’.
Find Out How The Inflation Rate Could Affect Your Mortgage
At the moment, we are not seeing any signs from the Bank of England bringing the base rate down, since the last decrease on the 19th of March 2020, when it was reduced by 0.15%, bringing the base rate to 0.10%. However, with the inflation reducing, we can only estimate that this could be the case in the coming months.
For more information or to find out how your mortgage could be affected, contact our friendly team today to book your free initial consultation at admin@thelevelsfinancial.co.uk or call us at 01458 772 040.
Important information:
If you do not keep up with your mortgage repayments your home may be repossessed.
A fee may be included for mortgage advice. The actual mortgage amount you pay will differ depending on your circumstances. Fees can be up to 1%, but typically a fee is 0.3% of the borrowed amount.
