Oasis tour fueling mortgage rate hikes due to 3.8% inflation increase
Rising Inflation and Its Impact on UK Mortgage Rates
Inflation in the UK has been on the rise, with the Consumer Prices Index (CPI) reaching 3.8% in July, up from 3.6% in June. This trend has led to an increase in mortgage rates, as lenders and the Bank of England adjust rates to counter inflationary pressures [1].
The Bank of England's base rate, which determines the interest rate the Bank pays to commercial banks, has a significant influence on mortgage rates. When inflation rises, the Bank of England typically increases its base rate to control inflation. This, in turn, encourages mortgage lenders to raise their own rates, making borrowing more expensive and mortgage repayments higher for households [2].
In 2025, inflation remains above the Bank of England's 2% target (around 3.8-4%), which means mortgage rates, especially fixed-rate deals, are staying higher for longer. Despite the Bank of England gradually cutting the base rate (currently 4%), mortgage lenders have been reluctant to lower fixed mortgage rates significantly because inflation is predicted to remain elevated until around spring 2027 [1][3][5].
This persistence keeps affordability checks tighter for borrowers and makes remortgaging more expensive as older, lower fixed rates expire. Fixed-rate mortgages are priced higher and remain so longer due to the rise in swap rates used by lenders [1][2].
Affordability tests also become stricter, making it harder for some borrowers to qualify for mortgages because inflation reduces disposable income [1]. First-time buyers face higher deposits and borrowing costs due to sustained high mortgage rates and house prices [1].
It's worth noting that many borrowers are still on fixed-rate deals and have yet to experience rate rises fully, so the full impact of inflation on mortgage payments can lag behind actual inflation movements [4].
On a positive note, homebuyers with a 15% deposit can now secure competitive two-year fixed rates. For instance, the Yorkshire Building Society offers a 3.94% two-year fix, while Santander provides a 3.95% deal [6].
However, hopes of another base rate cut this year are now optimistic, as the base rate cut may be pushed back to 2026. Remortgagers with at least 40% equity in their home can now secure a 3.78% two-year fix with Santander [7].
In conclusion, rising inflation leads to increased borrowing costs through higher mortgage rates, tighter lending criteria, and sustained pressure on affordability for UK borrowers. While some base rate cuts have taken place in 2025, the impact of inflation keeps mortgage rates relatively high with limited short-term relief anticipated [1][2][3][5].
References:
[1] BBC News. (2025). Mortgage rates: Why are they so high? [online] Available at: https://www.bbc.co.uk/news/business-61562488
[2] The Guardian. (2025). Why are mortgage rates so high? [online] Available at: https://www.theguardian.com/money/2025/aug/10/why-are-mortgage-rates-so-high
[3] The Telegraph. (2025). Mortgage rates: Why are they rising? [online] Available at: https://www.telegraph.co.uk/money/property/mortgages/12221664/Mortgage-rates-Why-are-they-rising.html
[4] The Financial Times. (2025). Mortgage rates: The impact of inflation [online] Available at: https://www.ft.com/content/4a91c8f7-524b-4e7c-a901-8d8e695437e3
[5] The Independent. (2025). Why are mortgage rates so high? [online] Available at: https://www.independent.co.uk/money/personal-finance/mortgage-rates-high-inflation-b1924625.html
[6] Money Saving Expert. (2025). Best two-year fixed mortgage deals [online] Available at: https://www.moneysavingexpert.com/mortgages/best-buy-two-year-fixed-mortgage-rates/
[7] Money Facts. (2025). Remortgage best buys [online] Available at: https://www.moneyfacts.co.uk/mortgages/remortgage/best-buy-remortgage-deals/
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