Warning to anyone with a mortgage after inflation hits 3.6%

People with mortgages have been warned that borrowing costs could increase after inflation rose to 3.6% in June. The average price of goods and services had been expected to remain unchanged from 3.4% in May, and is far above the Bank of England's 2% target. Bank Rates are less likely to be cut when inflation rises, meaning mortgage lenders may not cut their rates and borrowing becomes more expensive.

Fixed-rate and variable-rate mortgages are indirectly impacted by the Bank Rate, which is set by the Bank of England to charge commercial banks when they borrow money. It's currently 4.25% and influences interest rates at said banks, which charge customers for loans and pay on savings.

Mortgage rates are already high and have been for two years, making it harder for first-time buyers to get on the housing ladder.

Existing homeowners have also been affected by the switch from ultra-low fixed-rate mortgages to new ones, making new payments at today's rates. The average two-year fixed rate mortgage is currently 5.03%, according to Moneyfatcs.

Nathan Emerson, of trade body Propertymark, warned that there needs to be more support for people buying houses, particularly as Labour wants to construct 1.5 million properties by 2029.

He told The Telegraph: "This news will provide no respite for people who are struggling with their personal finances at a time when there is widespread data suggesting Britain's finances are in a 'perilous' state.

"Housing plays a pivotal role in the UK economy, and considering the UK Government and the devolved administrations have set themselves ambitious housing targets, it's important that there is strong affordability to support consumers with their housing ambitions."

The pace of price rises in June was pushed up by fuel prices and offset by slower house price rises, the ONS said.

Richard Heys, acting chief economist for the ONS, said: "Inflation ticked up in June, driven mainly by motor fuel prices which fell only slightly, compared with a much larger decrease at this time last year.

"Food price inflation has increased for the third consecutive month to its highest annual rate since February of last year."