UK Mortgage Market in Crisis: Fear of Recession as Inflation Soars and Banks Pull Deals

The past week has seen a tipping point with fears of recession as inflation remains high and the cost of borrowing for the UK government has risen, marking a different situation from last autumn.

The Bank of England is expected to raise interest rates, which could lead to a pre-election recession.

The Chancellor, Jeremy Hunt, acknowledged the situation and stated that supporting the Bank of England is necessary to bring down inflation.

However, the markets are making assumptions about sticky inflation, which could lead to higher fixed mortgage rates and increase the probability of recession.

The article discusses the impact of food inflation on the mortgage market.

Food inflation is currently at its highest level since the 1970s, and a new system of post-Brexit border controls on European food imports is set to be imposed at the end of the year.

This is causing concern as many homeowners are rolling off super-low fixed mortgage deals, which were signed during the mid-pandemic stamp duty holiday property boom.

Measures of adjusted mortgage affordability are flashing red, indicating a potential problem.

There are also other pressures on disposable income that are not going away, which could make the situation worse.

The Sunak administration had hoped to deal with the economic pain of the inflation shock this year, before a possible election, but this is now in balance.