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Inflation Watch - How The economy is shaping up for 2024

UK inflation remained unchanged at 6.7% in September 2023, according to the latest figures from the Office for National Statistics (ONS). This is the same rate as in August, and down from a recent peak of 11.1% in October 2022.


Despite the fall in inflation, it remains at a 40-year high, and is causing significant long lasting financial hardship for many households. Mortgage borrowers are particularly vulnerable, as their monthly repayments are linked to the Bank of England base rate.


The Bank of England has raised interest rates eight times since December 2021 in an attempt to bring inflation under control. However, the latest figures suggest that these rate hikes are having little impact so far.


What does this mean for mortgage advisers?

Mortgage advisers need to be aware of the impact that inflation is having on their clients. Many borrowers are finding it difficult to keep up with their mortgage repayments, and some may be at risk of defaulting.


Advisers need to be prepared to offer support and advice to borrowers who are struggling. This may include helping them to find a more affordable mortgage, or to manage their budget more effectively or utilising the Mortgage Charter.


How mortgage advisers can use inflation information when giving advice to their clients

Mortgage advisers can use inflation information when giving advice to their clients in a number of ways. For example, they can:

  1. Educate your clients about inflation. Explain to them what inflation is, how it works, and how it can impact their finances. The more your clients understand about inflation, the better equipped they will be to make sound financial decisions.

  2. Assess your clients' financial situation. Take a close look at your clients' income, expenses, and debts. This will help you to determine how much they can afford to borrow and how their mortgage payments will be affected by inflation.

  3. Recommend the right mortgage product. There are a variety of mortgage products available, each with different features and benefits. Some products may be better suited for borrowers who are concerned about inflation than others. For example, a fixed-rate mortgage can protect borrowers from rising interest rates.

  4. Help your clients create a budget. A budget can help your clients to track their spending and make sure that they are not overspending. This is especially important during a period of high inflation, when the cost of goods and services is rising.

  5. Provide ongoing support. Let your clients know that you are there to help them throughout the mortgage process and beyond. If they have any questions or concerns about inflation or their mortgage, they should not hesitate to contact you.Economic predictions for Q1 2024

Economists are predicting that UK inflation will start to fall in Q1 2024. However, it is likely to remain above the Bank of England's target of 2% for some time.


Many people think that the Bank of England is expected to continue raising interest rates in an attempt to bring inflation under control. This is likely to lead to higher mortgage rates, which will make it more difficult for people to borrow money.


The latest Nationwide House Price Index shows that house price growth remained weak in September 2023, with annual growth unchanged at -5.3%. This means that the average house price in the UK is now £268,281, which is £14,500 lower than it was a year ago.


There are a number of factors contributing to the weak house price growth, including the rising cost of living, the ongoing war in Ukraine, and the uncertainty surrounding the UK economy.


For consumers, this is good news, as it means that houses are now more affordable than they have been in some time. However, it is important to note that interest rates are also rising based on historic trends in the last couple of years, which means that mortgage repayments will be more expensive - especially for those consumers coming to the end of 5 year deals.


Overall, the weak house price growth is a mixed bag for consumers. However, it is important to remember that the housing market is cyclical, and prices are likely to start rising again in the future.


Conclusion

UK inflation is at a 40-year high, and is causing significant financial hardship for many households. Mortgage borrowers are particularly vulnerable.

Mortgage advisers need to be aware of the impact that inflation is having on their clients. They can use inflation information to help borrowers assess the affordability of a mortgage, recommend the right mortgage product, and provide advice on managing household finances.

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