UK Inflation hits highest levels in 5 years

UK inflation levels hit 3% in September 2017, the highest since April 2012.

Inflation is the measure of what we are paying for goods and services, measured using the Consumer Prices Index (CPI) and the Retail Prices Index (RPI) which compare prices of a range of costs such as groceries, fuel and mortgage payments.

The Office for National Statistics (ONS) have released figures demonstrating that unemployment is at the joint lowest levels since 1975 and despite average wages increasing by 2.2%, real wages are falling as the increase isn’t enough to offset increasing inflation. The ‘UK Labour Market: October 2017’ Release from the ONS states; “Latest estimates show that average weekly earnings for employees in Great Britain in real terms (that is, adjusted for price inflation) fell by 0.3% including bonuses, and fell by 0.4% excluding bonuses, compared with a year earlier.”

Average total pay for employees in Britain, including bonuses and before tax or any other deductions from individual’s wages, is £507 per week. This has increased from £496 per week in the same period in the previous year.

With inflation rising and the potential for interest rates to increase, it will become more difficult for first-time buyers to save a deposit and for existing mortgage owners to reduce their debt. The Rightmove House Price Index for October 2017 has shown that house prices are increasing in almost every region across the UK on a monthly and annual basis. The national average house prices is £313,435 which is a 1.1% increase on September and a 1.4% increase on October 2016.

In the North East of England, monthly house price increases is roughly in-line with the national average at 1.5% however the annual increase was 5% with only one region, West Midlands, experiencing a larger growth of 5.5%. The average house price in the North East, according to figures from Rightmove, was £144,616 in October 2016 and has risen to £151,795 in October 2017.



Richard Ponton, director at Newcastle property consultancy Walton Robinson said;
“With inflation reaching a 5 year high, we are now expecting the first-rate increase in more than a decade. This will make borrowing more expensive, and as such put a squeeze on the affordability of mortgages. We hope that the longer-term effect will be to stabilize house prices. Whether this constraint on buyer affordability will demotivate housebuilders sufficiently to slow production will depend on how far rates increase and how soon.


So, how does increasing inflation affect your mortgage?

The Bank of England carefully monitor inflation and use this information to set interest rates. If they predict that inflation will rise, interest rates may be set to increase. With the news that UK inflation is now at 3%, financial experts believe interest rates may also rise. For those on tracker mortgages, repayments are likely to increase.



Jake Baker of Walton Robinson Private Finance (pictured left) advised;

“Following the recent announcement that inflation had reached its highest level since 2012, now is the time to start thinking about your current Mortgage rate. Consider whether opting to fix your rate for a period of time is the best option in light of the potential for the Bank of England to increase interest rates. As independent mortgage advisers, we are best placed to look at rates across the whole marketplace and ensure clients receive the most competitive rate.”

Contact Jake and the team at Walton Robinson private finance on 0191 211 3964 or email for expert financial advice on your mortgage.

Walton Robinson Private Finance is a trading style of Peritus Private Finance which is authorised and regulated by the financial services authority.