UK inflation is expected to climb slightly when figures are released next week, driven by increased costs at petrol stations and rising food prices. Despite this, financial markets are still anticipating interest rate cuts in 2025, with at least two reductions predicted throughout the year. For landlords, this presents a mix of challenges and opportunities.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, explained: “Headline CPI inflation is expected to continue to rise slightly, continuing the unwelcome trend we’ve seen since October. Prices at the pumps ticked higher over the month, while food price inflation jumped to 3.7% in December, the highest level since March.”
She added, “Even though the economy has been stagnating and going into reverse in recent months, wage growth is still running hot. The annual growth in private sector regular average weekly earnings rose to 5.4% in the three months to October, which is likely to keep prices charged by companies higher.”
What it means for landlords and mortgage borrowers
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Higher inflation isn’t great news for mortgage borrowers, but it’s unlikely to heap significantly more misery on them either, because this is largely priced into current deals. The two-year fixed rate market, which is reactive to inflation data, may rise slightly from its current position just under 5.5%, but it’s not going to transform the mortgage landscape.”
For landlords, this means being strategic about remortgaging and negotiating better deals when purchasing new properties. Coles emphasised the importance of shopping around: “It’s still going to be key to shop around for a decent deal when remortgaging and negotiate on the asking price when buying. Buyers still need all the help they can get – whether it’s from the Bank of Mum and Dad or the bonus from a Lifetime ISA.”
Savings opportunities and long-term stability
Inflation’s effects aren’t all negative, particularly for savers and those with investments. Savings rates remain competitive, with easy access accounts offering up to 5%, boosted by a six-month bonus. “Even without the bonus, savers can achieve 4.85%, far more than expected at this stage,” Coles noted. Fixed-rate accounts have also held steady, but she advises acting quickly to lock in these attractive rates before they trend downward alongside anticipated interest rate cuts.
Landlords, too, can find opportunities in the shifting financial climate. With inflation largely priced into current mortgage deals, the market remains stable enough to secure favourable agreements. “Higher inflation doesn’t mean landlords are entirely out of options,” said Coles. “By staying informed and proactive, they can still make the most of a changing market.”
Looking ahead: balancing risks and opportunities
While rising inflation and lingering uncertainty may challenge landlords in the short term, the long-term outlook remains optimistic. The Bank of England is widely expected to deliver at least two rate cuts in 2025, which could bring some relief to mortgage borrowers and landlords managing portfolios.
As Streeter pointed out, “Even though inflation is set to veer further away from target, policymakers will have an eye on the struggling economy, so they’re not going to want to push rate cuts too far down the track.”
