Mortgage brokers have issued a warning after new data showed inflation rising to 2.9% in July, an increase from June's figure of 2.6%. The Consumer Prices Index (CPI) rise was published on Wednesday, and experts say it puts the Bank of England in a difficult position.
Brokers say the increase has "largely" been priced in by lenders, but they warned borrowers that further cuts may be on ice if swap rates start to head north. Swap rates, which are used to price fixed-rate mortgages, remained relatively steady on Wednesday morning. However, experts say that if energy prices continue to rise as the impact of the Middle East conflict ripples through, lenders could pause their cuts and even nudge rates up.
Broker views on the inflation data
Samuel Mather-Holgate, managing director of Swindon-based Mather and Murray Financial, said: "Today's 2.9% inflation print was largely priced in by lenders, so on its own it should not trigger a full-scale mortgage rate reversal. The problem is not the number, it is the direction of travel. The Middle East conflict is now feeding through into energy costs and that puts markets back in the danger zone."
He added: "If investors start to believe inflation is sticky again, recent rate cuts could pause very quickly and some lenders may nudge prices back up. We are on a precipice: if energy prices settle, the mortgage market can keep drifting lower; if they spike again, borrowers could see the window for cheaper deals slam shut."
Jamie Elvin, director at London-based Strive Mortgages, said: "Inflation rising was expected, so in isolation I wouldn't expect it to have a significant impact on mortgage rates. For now, I'd expect continued volatility rather than a dramatic move in either direction."
Market expectations and lender behaviour
Matt Coulson, founder of Rickmansworth-based Heron Financial, agreed that today's inflation spike would have been on lenders' radars for some time. He said: "Lenders don't wait for the official figure, they price off swap rates, and swaps had already drifted up in anticipation of inflation heading this way. So a 2.9% print that was broadly expected shouldn't move fixed rates much on its own. The small cuts we saw from Nationwide and Halifax were lenders competing for business, not a bet that inflation was beaten, so they were never really hanging on today's number."
He continued: "Realistically I'd expect more of the see-sawing we've had for weeks rather than a clean move either way. If swaps push up on the energy story in the next few days, don't be surprised to see one or two lenders trim those reductions back."
Stephen Perkins, managing director of Norwich-based Yellow Brick Mortgages, said market expectations would be key. He added: "The bigger question is what markets expect inflation to do next, because that feeds into the funding costs behind fixed mortgage rates. One month's figure shouldn't derail recent reductions on its own, but if inflation continues climbing, lenders may have less room to keep cutting."
Potential glimmer of light
Tracey Dixon, owner of Cardiff-based Pure Mortgage and Protection, said there might be a glimmer of light: "The reassuring detail is that core inflation remained stable and services inflation eased. The headline figure matters, but lenders will be looking beyond it. Wednesday's data may take some momentum out of the mortgage price war, but it does not necessarily mean recent rate cuts will immediately go into reverse."
Elliott Culley, director of Hayling Island-based Switch Mortgage Finance, said "it should come as no surprise to see inflation rising". He continued: "With an elongated war in the Middle East impacting fuel prices, there was always going to be a knock-on effect across the economy. However, we will have to wait and see how markets digest and react to the news."
