Inflation surges to 10.1%: Mortgage borrowers urged to act as lenders get ahead of the BoE curve

Inflation hit a new more-than-40 year high last month, with the Consumer Prices Index (CPI) rising by 10.1% in the 12 months to July 2022, the ONS revealed today. The rate climbed from 9.4% in June, and is ahead of analyst expectations, with inflation in the UK last this high in February 1982.

On a monthly basis, CPI rose by 0.6% in July 2022, compared with no change in July 2021. Rising food and non-alcoholic beverage prices made by far the largest upward contribution to the change in the CPI annual inflation rates between June and July 2022.

Adrian Lowery, financial analyst at UK wealth manager Evelyn Partners, comments:

“The soaring price of groceries is a major concern as, alongside the explosion in energy prices, it is wiping out the monthly household budgets of those on lower incomes. Clear and feasible strategies to address the new unaffordability of necessities in the short term have been in short supply from Whitehall unfortunately, and it can only be hoped the latest inflation overshoot crystallises some workable and effective ideas before the October energy price cap hike kicks in.

“With inflation, bad news is bad news, and this reading makes another 0.5% base rate hike a consideration for the Bank of England at its next monetary policy committee on 15 September. The increasing cost of servicing mortgage debt is inflicting something of a double-whammy for homeowners, and particularly those with larger loans that are coming up for renegotiation in the coming year.

“The raised possibility of an increase in Bank Rate to 2.25% next month should really focus the minds of borrowers who can take steps to try and lock in at rates that are on the market now. Some lenders will be considering withdrawing their best rates after this inflation data, to get ahead of the BoE curve, as no bank or building society wants to be left offering the best deals on the market, which risks them getting flooded with applications – in a sort of ‘devil takes the hindmost’ game.

“Steps concerned borrowers can take are first to check when their current deal expires and if it is inside six months, to make an appointment with either their mortgage lender or a broker. For borrowers who want or have to stay and remortgage with their current lender it’s more likely to be four months. Next is to prepare for that by getting all documentation ready so any deal that is offered can be applied for swiftly – ie, hard copies of recent payslips and bank statements - and making some budgeting calculations of what monthly payments can be afforded.

“Mortgage applications always tend to involve more steps and time than anticipated, and watching the lowest rates being taken off the table can be frustrating, so being well prepared is essential. It’s in situations like these that a good mortgage broker will earn their fee.”