>>Inflation and interest rates

Inflation and interest rates

Since the UK voted to leave the EU, the depreciation of Pound Sterling has been considered responsible for the gradual rise in inflation, culminating in September’s CPI climbing to 3%. With the Bank of England largely basing its monetary policy on a 2% inflationary target, all talk has been of a likely increase in rates when the monetary policy committee meet next month. The Bank’s requirement to maintain price stability whilst stimulating economic activity means the expected decision is still too close to call. Should interest rates not change in November expectations will continue to mount into 2018 should inflation remain unchecked.

Despite any actual rise being cautious and rates still at previously unseen lows, any increase will slow property prices as prospective purchasers become more cautious to borrow amongst the implication of higher repayments. In addition, inflation is now 0.9% above the rate of wage growth further squeezing incomes and toughening the plight to the monthly mortgage bill for many.

For those with their finger hovering over the purchase button, however, an impending interest rate rise could prove the perfect catalyst to take the plunge and a near-term price surge (comparable to that seen before the most recent SDLT changes) cannot be ruled out. This could be more prevalent if speculation continues for months before the Bank of England acts and buyers fight over limited stock in the run-up to Christmas.

House price growth has already slowed to +2.6% in London over the last year, significantly less than most areas with the ONS suggesting the average for the UK sits at 5%. 1 When accounting for inflation, house prices in the capital have fallen in real terms over the past 12 months. Nevertheless, over the last decade, a very different picture emerges when comparing London to regions outside London. Parts of London have seen massive increases in real terms in house prices whilst many regions outside of the South East have seen significant decreases. 2

Expectations are that inflation will continue at around the 3% mark over the coming months and above the Treasury’s 2% target for the next three years. 3 The tipping point at which interest rates will start to rise is certainly getting closer and this may prove to be important to rebalance some real growth between the different regions of the UK.

With 2017 concluding, Brexit uncertainty persisting and government-led house price depression appearing resolute, 2018 buyers will have to weigh higher mortgage costs against stalling house prices. From an investment perspective, 2017 marked the end of the part-time landlord and 2018 will continue to drive those cash-rich but option poor investors to alternative real estate investment avenues. Since the introduction of the second home stamp duty tax, this has been a trend that Cogress have seen very clearly.


  1. https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/august2017
  2. http://www.bbc.co.uk/news/business-41582755
  3. http://www.independent.co.uk/news/business/news/bank-of-england-governor-mark-carney-inflation-further-rise-highest-level-2012-a8005386.html

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Tal Orly2018-11-16T22:42:26+00:00