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Inflation Spikes Higher Than Expected


Today’s inflation figures, rising dramatically to 2.9%, could well bring to an end the ‘rate complacency’ we have seen among borrowers over the past year or so.

Whilst there are suggestions that this spike in inflation has been expected and is merely temporary, it is unlikely to drop off sharply if recovery does continue to grow and will undoubtedly put pressure on the Bank of England to seriously consider finally raising interest rates.

This is a real shot across the bows for borrowers, many of whom are quietly banking on a low interest rate environment in the short term. But this is a risky game to play.

More people than ever are on variable rate mortgages at present, either because they cannot remortgage or because they have decided not to given the discount on variable rates relative to fixed.

If rates do indeed rise to contain inflation then many borrowers will find themselves with significantly higher monthly payments and many borrowers who should be fixing may well be leaving it dangerously late.

The prices of fixed rate mortgages have fallen slightly due to an increase in competition in the mortgage market, although this trend could well reverse given today’s figures.

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