Inflation rises to 11.1% - What next for base rates and mortgage rates in 2023 and beyond?

PK_London

With CPI now at 11.1% where do we think base rates and mortgage rates will be heading in 2023?

I was expecting rates to peak at 4.5% next summer but I'm not so sure now. 

Historically base rates have been generally higher than inflation but with with the amount of UK debt, I myself don't see this happening.



Personally I believe the inflation genie is out of the bottle and we're looking at high inflation and medium interest rates until the end of the decade at least. A lot of eyes will be on the Autumn statement now.

What are your thoughts?

london21

Inflation is still high and far from the BOE target.

Next increase 15/12 looks like another 0.75% increase. 

Aberdeenangarse

Agreed. I’ve stated several times that I can’t see average mortgage rates being much less than 5% for the rest of the decade. Many have been lulled into a false sense of security with low interest rates these last few years.

simon_or

So far, nothing too unexpected. I doubt this will have any material impact on the trajectory of bank rate rises signalled by the bank or market expectations of a 4.5% peak next summer.

A 0.25-0.50% base rate rise in Dec, no change in the direction of mortgage rates which is currently trending downwards albeit slightly. Real house prices to keep falling slowly to gradually adjust to the higher mortgage rates.

PK_London

Aberdeenangarse said:

Agreed. I’ve stated several times that I can’t see average mortgage rates being much less than 5% for the rest of the decade. Many have been lulled into a false sense of security with low interest rates these last few years.

I've been following the US interest rates for months myself and definitely saw our mortgage rate rises coming well before they hit. Food inflation is over 16% mainly driven by energy. There are still outlets saying that mortgage rates will be under 4% by next year but that seems like wishful thinking.

Between 1970 and 1980 UK inflation averaged 10% a year, every year. In theory, the best thing to do in a high inflation environment is to load up on debt. A lot of people who bought property in the early 70s had their mortgage debts pretty much cleared by inflation.

Wage inflation is also very real now. Average private sector pay has risen 6.2%. I work for an American property/tech company. We just put our prices up by 16% and we're not losing much business. All staff have been given a pay rise (not quite inflation busting) but we had to react to market pressures.

Inflation also erodes government and personal debt so there are some benefits.

In my humble opinion, cost inflation, paired with wage inflation could see us going back to the early 70s again. I don't expect base rates to rise much above 5% in the next 12 months. That means inflation will remain high.  However if we enter a cadence where everyone gets a 7% pay rise each year and interest rates remain in the high single digits, it will take some time to really tame inflation again. 

Essentially, if you have just taken out a large mortgage, inflation is your friend. It will also allow the government to conveniently mitigate the effects of all the covid borrowing. 

K_S

Limited to mortgage rates - I've got no opinion on the medium/long term outlook on mortgage rates (as there are too many unknowns and variables that will impact these) but in the short-term I expect fixed-rates (and tracker/discount margins) to slowly continue to come down in price as the recent fall in cost of funds reflects in pricing, lender processing capacity continues to improve and lender competition intensifies as volumes fall.

And even that is assuming we don't have another post mini-budget kind of event!

Aberdeenangarse

Mortgage rates could stay ay 5% for next five years.

https://www.bloomberg.com/news/articles/2022-11-17/uk-sees-mortgage-rates-staying-near-5-for-another-five-years?leadSource=uverify%20wall

tony3619

Aberdeenangarse said:

Mortgage rates could stay ay 5% for next five years.

https://www.bloomberg.com/news/articles/2022-11-17/uk-sees-mortgage-rates-staying-near-5-for-another-five-years?leadSource=uverify%20wall

So fixed rates unlikely to drop below 6% in the the next couple of months? I was hoping for 5-6% when my fix is up for renewal in February. 

djr2031

What impact do people think the fiscal statement today and the fact that we are now in a recession will have on mortgage rates?  

snowqueen555

It's a mixed reaction form the markets. There is a worry the penny pinching is a bit too heavy handed and will stifle growth. TBH this sounds just like the austerity policy 10 years ago which we are all still suffering from.

simon_or

djr2031 said:

What impact do people think the fiscal statement today and the fact that we are now in a recession will have on mortgage rates?  

None really. It'll continue on the current trend, which appears to be slightly downwards until the mini-budget spike fully unwinds. Imho.