The news that inflation was on a downward trend is good, especially for homeowners having to endure so many impacts to their household budget. Inflation has long been a source of financial pain to homeowners as energy, fuel, food, services, and products all were taking more money away from their budget. In response to the double-digit inflation growth, the Bank of England’s Monetary Policy Committee (MPC) began in December 2021 increasing the standard base interest rate to combat inflation and bring relief to the economy. It added higher interest rates to the woes of household budget strains.

In another sign that the housing market is shifting, asking prices fell by the sharpest decline since 2018 according to Rightmove. The online property listing website reported that despite the decline, house prices still remain above pre-pandemic levels by 20.0%. The average house price of properties coming onto the market was £364,895. 

Interest rates are much more expensive for borrowers than they were two years ago, and unfortunately the cost of borrowing is going to get more expensive. The Bank of England’s Monetary Policy Committee (MPC) is fighting inflation by raising interest rates. In simple terms, if it costs more to borrow money, people will spend less, demand will drop, supply will grow, and prices will reflect the drop in demand. It will help the economy overall, but meanwhile those that must borrow are put in a tough position while the MPC is working on inflation.

The latest report on inflation was released today by the Office for National Statistics (ONS) showing the efforts of the Bank of England’s Monetary Policy Committee (MPC) is paying off. Inflation fell to 6.8% in July, which was in line with the forecast given and this could bring about some good news for borrowers. Reaching the forecasted level for inflation could take some pressure off the MPC and should amount to the next rate hike only being 0.25% in September, while had it stayed above forecast, a larger rate increase could have occurred such as the 0.50% voted on in June. 

The last meeting of the Bank of England’s Monetary Policy Committee (MPC) resulted in the fourteenth consecutive gathering in which an increase to the standard base interest rate occurred. The next meeting in September is likely to push the base rate even higher. While inflation has responded to the MPC’s rate hikes by dropping to 7.9% in June and is forecasted to fall to 6.8% in the next report, but it will still be three times the target rate of 2.0%. The increase to the rate is expected to be another 0.25% as in August which will take the rate to 5.50%.

Inflation is falling but will be with us until 2025, interest rates are rising and will continue to do so till inflation is near target, but perhaps the newest threat to household budgets is that house prices could begin to decline and pull the one opportunity to save money from the grasp of homeowners. As the housing market experiences a lack of demand and house prices begin to drop, so do the values of properties. Despite a homeowner residing in their home and paying their monthly repayments, the value of the home matters, even if there is no intent in the near future to sell the property.