The threat of inflation
As we see a number of UK mortgage providers revisiting their figures and increasing their interest rates, it seems as though the threat of inflation is about to hit the UK. Only weeks after the threat of deflation it looks as though the UK economy may have turned a corner, although any significant boost in the short term could feed the monster that is inflation. So what does this mean for mortgage holders?
An expected increase in inflation has seen investors selling government gilts because the real return will diminish as inflation rises and with many other interest rate instruments based upon government bonds this could have a knock-on effect to the financial industry. However, many people believe that UK mortgage providers are milking the system and increasing their profit margins in the short term at the expense of UK investors and the UK mortgage market.
Even if the UK mortgage providers have reason to fear a sudden surge in inflation they could actually tip the UK economy back into a downward spiral if they raise mortgage rates too quickly and stamp out any potential recovery in the property market. Confidence and the property market are two factors which will weigh heavy on the short to medium term direction of the UK economy and if either one is dented then we could see investors run for the hills again.
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