It is, a tricky question
We can engage in debates regarding the current surge in interest rates, but my stance remains consistent, both then and now: "the financial well-being of a family should always take precedence over the profits from a house, as those beyond a certain age can attest." Your home is your sanctuary; don't take risks with it, or jeopardise your ability to meet mortgage payments.
Inflation has been driven by several key factors: China's strict zero-covid policy, which led to factory closures, causing supply backlogs amid sustained high demand and price hikes; skyrocketing shipping costs; a sharp decline in the value of the pound, resulting in price increases for net importers; supply constraints due to sanctions on Russia, particularly in the energy sector; and profit-seeking behaviour by energy companies and corporations. None of these factors are within the control of the average person, who is now grappling with the burden of high interest rates.
In my view, there is no justifiable rationale for the Bank of England to raise interest rates to combat inflation. While there may be logic, it is not a justifiable course of action.
So, what should you do about your mortgage rate? It's undoubtedly painful, but are there any signs on the horizon of rates easing?
Despite the central bank's headline rates steadily increasing, actual mortgage rates are now on the decline. This is not a headline the Bank of England would prefer, as they want people to feel financial strain and pressure. They believe this will keep wage demands low, but I believe it's counterproductive and an outdated method for curbing inflation.
When inflation is high and mortgage rates are rising, consumers logically demand higher wages, which organizations often cannot afford, leading to strikes and wage disputes. This strategy doesn't seem to make much sense! Furthermore, the housing market is impacted, with people feeling uncertain, pausing on property purchases, especially when headlines scream about rising rates. As a result, house prices drop, eroding consumer confidence once again. All of this can be avoided, of course.
Recent data indicates that two-year swap rates remained unchanged after the August rate hike. These "swap rates" provide insights into market expectations for interest rates. They represent what lenders pay financial institutions to secure fixed funding for a specific period, which they use to price their mortgages. In July, these rates hovered around 6% to 6.3% and have now dipped below 6%. This drop in swap rates might simply be a correction from an overly aggressive rate increase. Lenders may be lowering rates because potential borrowers are hesitant to take on new debt. To remain competitive in a shrinking pool of borrowers, lenders need to offer more attractive terms.
Inflation is calculated on a year-on-year basis. The price increases from 12 months ago will not be reflected in next month's figures. Inflation hasn't actually fallen; it's just that the recent increases no longer factor into the new 12-month figure. This pattern will continue in the coming months, making it appear as if inflation has dropped. We are due for an election by January 2025, but it could come sooner. Elections occurred in 2015, 2017, and 2019.
As these inflationary numbers recede, the pressure on interest rates should naturally ease, coinciding with a more positive sentiment as an election approaches.
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