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Scotsman
16-07-2025
- Business
- Scotsman
UK inflation shock: Where now for interest rates as cost-of-living hits near 18-month high
'Inflation like this can no longer be dismissed as a blip. It's now a barrier to cutting interest rates.' – Peter Stimson, MPowered Mortgages Sign up to our Scotsman Money newsletter, covering all you need to know to help manage your money. Sign up Thank you for signing up! Did you know with a Digital Subscription to The Scotsman, you can get unlimited access to the website including our premium content, as well as benefiting from fewer ads, loyalty rewards and much more. Learn More Sorry, there seem to be some issues. Please try again later. Submitting... News of an unexpected and unwelcome uptick in inflation will rattle Bank of England policymakers and cloud the outlook for future interest rate cuts. Official statistics revealed that the annual measure of consumer prices index (CPI) inflation rose to 3.6 per cent in June, up from 3.4 per cent in May and the highest reading in almost 18 months as food prices rose for the third month running. Advertisement Hide Ad Advertisement Hide Ad The increase in the headline inflation rate surprised economists who had been expecting it to remain unchanged at 3.4 per cent. Shoppers will have noticed the cost of some food items continuing to rise. Picture: Greg Macvean The Office for National Statistics (ONS) said annual food price inflation hit the highest level since February 2024, while transport costs and a spike in oil prices also pushed up the cost of living. Consumers will have noticed several items in their shopping trollies continue to rise, though other products have stabilised and a few have even eased since food price inflation peaked well into double-digit territory in early 2023. The surprise increase in inflation will be watched closely by the Bank of England ahead of its next interest rate decision on August 7. While the central bank's nine-strong monetary policy committee (MPC) is widely expected to trim rates again next month, from 4.25 per cent to 4 per cent, given a slowing wider economy, the latest unexpected rise in inflation may see policymakers tread cautiously further out. Peter Stimson, director of mortgages at lender MPowered Mortgages, said the 'intake of breath at the Bank of England will have been audible' as he warned that mortgage rates could nudge higher in the coming weeks. Advertisement Hide Ad Advertisement Hide Ad 'Inflation like this can no longer be dismissed as a blip. It's now a barrier to cutting interest rates,' he said. 'While the weakness of the economy means the Bank of England will be keen to resume rate cuts in coming months, the likelihood of an August cut has plunged from near certain to barely 50/50. This is likely to cause a shift in the swap rates which determine mortgage interest rates. The outlook for future interest rate cuts from the Bank of England, above, has become more cloudy. 'Mortgage rates may well have fallen as far as they can for now, and in the coming weeks rates may even creep back up as lenders recalibrate in response to rising swap rates.' Sarah Coles, head of personal finance at investment platform Hargreaves Lansdown, said a reduction in borrowing costs at the start of August was 'still likely to be on the cards'. She added: 'Mortgages and savings rates are already on their way down, as the markets price in an August cut, and then another later in 2025. Day-to-day we've seen rates wavering, but over time they're trending south. Annuities have inched down, but continue to deliver decent incomes.' Advertisement Hide Ad Advertisement Hide Ad Coles said food and drink prices were 'eating away at our spending power', noting that part of the problem was higher national insurance payments for employers being passed on as suppliers and supermarkets cover higher costs. Within transport costs, the ONS said air fares soared by 7.9% between May and June, marking the biggest rise since 2018. Beyond August's meeting, the MPC is due to gather on three more occasions before the end of the year - September 18, November 6 and December 18. Rob Clarry, investment strategist at Evelyn Partners, the UK wealth manager, said the UK continued to face 'stickier inflationary pressures' compared with other advanced economies. 'This is arguably reflected in the bond market with gilt yields remaining higher than their European counterparts, despite the UK facing a similarly weak growth profile,' he noted. Advertisement Hide Ad Advertisement Hide Ad '[The inflation report] complicates the outlook for the MPC, although traders continue to expect two further 25 basis point [quarter point] interest rate cuts this year.' The inflation figures come after UK gross domestic product (GDP) shrank by 0.1 per cent in May, following a 0.3 per cent fall in April and leading to fears of a contraction overall in the third quarter. Jobs figures this week are expected to show a further slowdown in wage growth, which may help smooth the path for an interest rate cut. The latest ONS data showed food and non-alcoholic drink price inflation lifted to an annual rate of 4.5 per cent in June, up from 4.4 per cent in May. Advertisement Hide Ad Advertisement Hide Ad Taking off Within transport costs, the ONS said air fares soared by 7.9 per cent between May and June, marking the biggest rise since 2018. Rail fares also rose month-on-month, having fallen a year earlier, while fuel prices fell only slightly last month compared with a larger fall a year ago. Hargreaves Lansdown's Coles said: 'Air fares continued to surprise. This is a common seasonal trend, but was much more striking this year, with the biggest June rise since 2018. 'Prices took off on long-haul and European routes in particular. It appears that wages rising considerably ahead of inflation has encouraged us to jet off this year.' The average price of petrol fell by 0.5 pence a litre during June, compared with a drop of 3p a litre between May and June 2024. Advertisement Hide Ad Advertisement Hide Ad Elsewhere, the data showed the ONS's preferred measure of inflation, consumer prices index including owner occupiers' housing (CPIH), lifted to 4.1 per cent last month from 4 per cent in May. Meanwhile, the retail prices index (RPI) rate of inflation rose to an annual 4.4 per cent in June from 4.3 per cent in May.
Scottish Sun
15-07-2025
- Business
- Scottish Sun
Mortgage guarantee scheme offering 95% loans confirmed in government plans
Read below to see when the change comes into place Click to share on X/Twitter (Opens in new window) Click to share on Facebook (Opens in new window) FIRST-TIME buyers with 5% deposits will continue to get help through a mortgage guarantee scheme, the government has confirmed today. The new scheme will be permanently launched from this month and means first-time buyers can borrow up to 95% of the home price. Sign up for Scottish Sun newsletter Sign up 1 Rachel Reeves' Government has confirmed a replacement for the mortgage guarantee scheme Credit: PA It replaces the previous Mortgage Guarantee scheme which first launched in 2021 and ended last month. Plans to relaunch the scheme were initially laid out in the Chancellor's Spending Review earlier this month. The move, reiterated in government documents published today, allows buyers to purchase a home across the UK with just a 5% deposit. The government then provides a guarantee to the lender to cover some losses if the buyer cannot repay their mortgage and the property gets repossessed. It is significantly lower than the 10% or 20% deposit many lenders ask buyers to pay when securing a home. For example, if you bought a house for £350,000, you would only need to pay a deposit of £17,500. Someone required to pay a 20% deposit on a property of the same value would have to make a down payment of £70,000. Since the scheme began, over 53,000 mortgages have been completed using it, with a total value of £10.7billion as of December last year. The small deposit mortgage deals were previously popular leading up to the 2008 financial crash but were phased out afterwards. The scheme has been hailed as an accessible way for buyers to get on the ladder. But the larger loan-to-value ratio for the mortgage means buyers will pay higher interest rates when they make repayments. Rachel Reeves FINALLY addresses Commons tears after she and Keir Starmer put on awkward show of unity Peter Stimson, director of mortgages at lender MPowered Mortgages, said the move comes "a year too late". He said: "The mortgage market has changed a lot since Rachel Reeves swept into 11 Downing Street last July. 'The Base Rate has come down by a full percentage point and hundreds of 95% LTV mortgage products are now available. 'Every lender who wanted to offer a 95% loan is probably already doing so. "The Chancellor's announcement is unlikely to make dozens more suddenly follow suit - as the price of entry is unknown and will vary each year." Many lenders are offering their own take on the 95% mortgage. Nationwide just recently launched a 95% mortgage for buyers looking to purchase a new build home. The offer also allows customers to borrow six times their annual income through its Helping Hand scheme. Elsewhere, Skipton Building Society offers a 100% mortgage deal that allows you to buy a home without a deposit. A similar mortgage deal was recently launched by April Mortgages too. ALL CHANGE Mortgages will also be available at over 4.5 times a buyer's income, following recommendations from the Bank of England to loosen lending rules. This will create more than 36,000 additional mortgages for first-time buyers over the first year, the Government said. Britain's biggest building society Nationwide also announced plans last week to make its "Helping Hand" mortgage scheme for first-time buyers available to people on lower incomes. From Wednesday, eligible first-time buyers can apply for Nationwide's Helping Hand mortgage with a £30,000 salary, down from £35,000, and joint applicants with a £50,000 combined salary – down from £55,000. It has been estimated that this will support an additional 10,000 first-time buyers each year. Brian Byrnes, head of Personal Finance at Moneybox, said: "It is encouraging to see steps being taken to support first-time buyers. "Enabling people to borrow more is not a silver bullet. "What first-time buyers truly need is not just the ability to take on more debt, but meaningful, long-term support to help them start saving and investing earlier in life so they can build up that all-important deposit." Elsewhere, plans to cut the tax-free allowance for cash ISAs have been put on hold by the Chancellor, after speculation that reforms to the savings account would also be announced.
Daily Mail
13-06-2025
- Business
- Daily Mail
EXCLUSIVE Cheaper mortgages and relaxed lending rules push up price of a first home
Cheaper mortgages and the ability to borrow more are set to push prices of first-time buyer homes even higher, after they already spiked at the start of 2025. Reduced stamp duty until April and falling mortgage rates increased the price of first homes during the early part of this year, according to analysis of Land Registry data by lender MPowered Mortgages. Between January and March this year, the average price paid by a first-time buyer spiked by £4,772, a 2.1 per cent increase in just two months. This means prices grew 2.5 times faster for first-time buyers than for those further up the ladder, for whom prices rose by just 0.8 per cent. The stamp duty changes came into effect on 1 April. While home movers could only save up to £2,500 if they completed by 31 March, first-time buyers could save as much as £11,250 depending on the price of the property they were buying. And between the start of February and the end of March, average two-year fixed mortgage rates fell from 5.52 per cent to 5.32 per cent, according to Moneyfacts. This led to a big rise in activity among first-time buyers. Fresh Bank of England data shows that 31.4 per cent of the £77.6bn in new mortgage lending completed in the first three months of 2025 was to those taking their first step on the ladder. This was the highest share on record and up 5.6 per cent compared to the same period in 2024. Where have first-time buyer prices risen most? The analysis by MPowered found prices for first-time buyers have risen most in northern England. The average first-time buyer in Yorkshire and the Humber paid £9,467 more for their home in March than in January, a 5.4 per cent rise. Meanwhile first-time buyer prices spiked £9,151 in the North East - a 6.6 per cent increase in just two months. The average price paid for a first home in the North East has risen by 15.1 per cent in a year and an incredible 40 per cent in five years. The average price paid for a first home in East Anglia rose by £8,148, a 2.9 per cent jump and well above the £5,777 increase in prices paid by buyers who already own a home. At the other end of the spectrum, prices fell across the board in London. However, while the average price paid in the capital by those who already own a home fell by £19,048, first-time buyers paid just £4,742 less on average. First-time buyers can now borrow more This is set to continue as falling mortgage rates, combined with changes to stress testing, have boosted buyers' purchasing power. The impact of this is already showing up in the data. More people registered to buy in May 2025 than in any May since 2021, according to data from the estate agent Hamptons. It revealed the biggest uplift in buyer registrations came from first-time buyers - up 4 per cent year-on-year. 'The post-stamp duty holiday lull has proven to be short-lived, with year-on-year changes in buyer demand returning to positive territory in May,' said Aneisha Beveridge, head of research at Hamptons. 'Falling mortgage rates have significantly boosted buyers' purchasing power, in most cases offsetting the increase in stamp duty bills they now face. 'First-time buyers have been the most significant beneficiaries, with high loan-to-value mortgage rates seeing the most substantial falls, alongside more favourable affordability assessments from lenders.' Since March, multiple high street lenders have loosened their mortgage rules, allowing people to borrow more when buying a home. The relaxation of mortgage stress tests is believed to be playing a pivotal role in boosting first-time buyer numbers with some finding they are able to borrow up to 20 per cent more than they could only a few months ago. Mortgage lenders 'stress test' fixed-rate mortgage borrowers, checking they would still be able to afford their repayments if their rate went up when their fixed deal ended. Until the recent changes, someone taking a two-year fixed mortgage charging 4.5 per cent interest might be stress tested on their ability to pay 7.5 per cent. On a five-year fixed rate, this might be 6.5 per cent - though few banks make their 'stress rates' public. Banks are allowing borrowers to stretch their finances further now because the regulatory environment has shifted. Recent guidance from the Financial Conduct Authority encouraged lenders not to unduly restrict access to mortgages that are affordable, especially as interest rates begin to stabilise. Peter Stimson, director of mortgages at MPowered, said: 'Buyers are routinely being offered loans up to 20 per cent larger than they were a year ago. 'For first-time buyers, who typically borrow close to the maximum they can, the ability to borrow more, and pay more, for a home is pushing up prices sharply. 'Lower stress tests are replacing stamp duty as the fuel for a first-time buyer boom.' Recent analysis by Savills also suggested that the easing of mortgage stress testing rules could cause house prices and first-time buyer numbers to rise. It says that more relaxed mortgage stress tests could see the number of first-time buyers purchasing a home rise by 24 per cent, or more than 80,000, over the next five years. Its analysis suggests more relaxed mortgage rules could boost first-time buyer transactions by between 14 per cent and 24 per cent. Easing mortgage stress tests could also cause property prices to rise by between 5 per cent to 7.5 per cent in five years, Savills added. Best mortgage rates and how to find them Mortgage rates have risen substantially over recent years, meaning that those remortgaging or buying a home face higher costs. That makes it even more important to search out the best possible rate for you and get good mortgage advice, whether you are a first-time buyer, home owner or buy-to-let landlord. Quick mortgage finder links with This is Money's partner L&C > Mortgage rates calculator > Find the right mortgage for you To help our readers find the best mortgage, This is Money has partnered with the UK's leading fee-free broker L&C. This is Money and L&C's mortgage calculator can let you compare deals to see which ones suit your home's value and level of deposit. You can compare fixed rate lengths, from two-year fixes, to five-year fixes and ten-year fixes. If you're ready to find your next mortgage, why not use This is Money and L&C's online Mortgage Finder. It will search 1,000's of deals from more than 90 different lenders to discover the best deal for you.
