How does coffee and chocolate relate to the cost of your mortgage?

At first glance, things like coffee and chocolate might not seem to have much to do with mortgages. But as you might have noticed, both have become noticeably more expensive in recent months.

Don’t worry, this isn’t another lecture about skipping your morning latte or Starbucks trip to save for your house deposit. Instead it’s a call to look behind those higher prices where you’ll find a bigger story about inflation, which has a direct impact on the mortgage deals available to you.

From everyday treats to global markets

Coffee beans and cocoa are traded on international markets, and their prices are influenced by factors like climate change, crop yields, transport costs and global demand.  When supplies are disrupted, as has happened recently with poor harvests in key producing countries, prices rise sharply. For consumers, that means higher costs at the supermarket or coffee shop.

The link to inflation

When everyday goods like food, energy and raw materials go up in price, it feeds into inflation – the measure of how fast the cost of living is increasing. Food prices, in particular, remain one of the biggest contributors to overall inflation.

Higher inflation puts pressure on the Bank of England to act, since one of its main roles is to keep inflation close to its 2% target.

Why this matters for mortgages

When inflation is high or expected to rise, the financial markets anticipate that the Bank of England will hold interest rates higher for longer. This expectation pushes up “swap rates” - the rates at which banks lend to each other.

Swap rates play a big part in determining the cost of fixed-rate mortgages, so if they climb, so does the cost for lenders to borrow money. This means they are less able to offer cheaper deals.

In other words, the higher cost of your flat-white or favourite chocolate bar can ripple through the economy and ultimately influence the rate you are offered on your next mortgage.

What you can do

The good news is that while global markets are outside our control, you can prepare for what’s happening closer to home. If your fixed rate is coming to an end, speaking to an adviser early can help you secure a new deal in advance and avoid being moved onto a higher Standard Variable Rate (SVR). An adviser can also guide you through all your options, whether you’re set to remortgage or looking to buy.  

One of the key benefits of using an adviser for this process is that they have a much wider choice of mortgage options available to them – compared to your bank or even your own online search. This means you can be reassured that you’re accessing competitive options that are best suited your needs and circumstances.

Coffee and chocolate may be everyday luxuries, but their rising costs are a reminder of how interconnected our finances really are. Understanding those links, and planning ahead, is the best way to stay one step ahead of changes in the mortgage market.

YOUR HOME MAY BE REPOSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

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