UK inflation drop brings optimism

August 24, 2023

As the rate of UK inflation has dropped quicker than expected, there have been some signs of optimism for the economy, mortgage sector and property market.

Having a clear picture of the current state of the economy, inflation and where it could be headed, in addition to what’s happening with interest rates and mortgage deals, can help you understand how you can be impacted as a property investor.

UK inflation dropped to 6.8% in the year to July, according to the latest figures from the Office for National Statistics. It was the second month in a row that the rate of inflation has slowed, decreasing from 7.9% in June and 8.7% in May.

Inflation now sits at a 15-month low. The recent drop was driven by a reduction in energy prices and food prices rising less rapidly. However, one of the main things keeping inflation high is rents.

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What could happen to interest rates?

The rate of inflation is still above the Bank of England’s target of 2%, in addition to its 5% target by the end of the year. This might mean that interest rates could increase again at the Monetary Policy Committee’s next base rate setting meeting on 21 September.

On 3 August, the base interest rate was most recently raised by 0.25% to 5.25%, which was the 14th consecutive increase and a 15-year high. However, ahead of the news about the drop in inflation, several high street lenders reduced rates on their fixed-rate mortgages.

It’s not easy to predict what’s to come, especially during times of uncertainty. Many professionals in the industry are predicting that we’ll see another rise to the base interest rate next month. But if the rate of inflation continues to drop, we may not see any further increases later in the year.

Mortgages for Business (MFB) said the latest inflation figures will act as a barometer for the Monetary Policy Committee’s upcoming meetings. Gavin Richardson, the managing director of MFB, stated: “I expect further falls to the overall inflation rate for the rest of 2023 driven, primarily, by falling energy prices. I think inflation will fall as low as 5% in the final quarter of this year.”

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What does this mean for property investors?

For property investors approaching a remortgage, they’re being recommended to look at securing a new rate as soon as possible. And for those looking to purchase a new property with the help of borrowing, a mortgage broker will be especially helpful navigating the current market.

Richardson added: “But the Bank of England is still going to increase the Base Rate in September — probably by a further 0.25%. So if you’re approaching your remortgage, while I expect inflation to ease, I recommend securing a new rate as early as possible; for some lenders, this can be up to six months before the end of your Early Repayment Charge (ERC) period.

“If mortgage interest rates decrease, many lenders allow you to switch to a more competitive product should one become available before you complete. Either way, you’ll have financial security and confidence that you’re on the most suitable mortgage for your circumstances.”

While there are currently higher rates for mortgages, particularly when compared to the historically low rates of recent years, demand in the rental market continues to surge. This is pushing rents up further and helping landlords mitigate these increasing costs.

Rent on completed tenancies are at an all-time high in England after a 19% month-on-month rise in July. The ongoing gap in supply and demand means property will remain a top investment choice for reliability.

If you want to know more about the property investment opportunities we have available at The Prestbury Advisory, get in touch with our team of experts today on 01625 725 779, or email us at contact@theprestburyadvisory.com.

UK inflation drop brings optimism

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