CPI numbers will raise mortgage rates


Written by on May 24, 2023 Ray Bolger

CPI numbers will raise mortgage rates

Although today’s CPI figures show a decline to 8.7%, the decline was less than expected and the most worrying core inflation increased from 6.2% to 6.8%. The comment in the minutes of the last MPC meeting that whether any further bank rate increases are needed will depend on the data has now been answered exhaustively, leaving only the debate as to whether 4.75% will prove to be the peak.

Since many mortgage borrowers have fixed their rates for 5 years, and few for much longer, any further bank rate increases will take a long time to have a material effect on many borrowers. The biggest immediate impact will be in the commercial market, where many loans are bank rate trackers, and the impact on people who are considering moving into a home or buying for the first time.

This should have a negative effect on house prices, which the bank would probably like to see, provided it doesn’t go too far, because it reduces people’s ability to trade or use equity in their homes for consumer purchases. Also, some potential FTBs who are still able to buy will have their confidence weakened.

The immediate impact of today’s inflation numbers has been a sharp rise in impressive bond yields, although some of the initial increase has been reversed, at the time of writing the 2-year is up 21 basis points to 4.31% and the 5-year is up 13 basis points to 4.11%. The increases come on the heels of several days of big gains, and over the past month, gold yields have risen about 0.5%.

The knock-on effect of higher swap rates, and therefore fixed rate pricing, will eat into the cost of fixed rate mortgages fairly quickly, and so anyone within 6 months of fixed rate expiration, or planning to apply for a mortgage should New, talk to their market broker as quickly as possible to lock in a price or prepare for a few months in anticipation of prices starting to fall later this year or early next year.


category: Ray Bolger

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