What next for the mortgage market?
It is fair to say that mortgage brokers may have been lulled into a false sense of security over the past few weeks, with the Bank of England reducing the base rate from 4.5% to 4.25%, and widespread speculation that a succession of rate cuts would follow in the remaining months of 2025. The tide was turning, it seemed… and then news came yesterday that the UK’s annual inflation rate rose to 3.5% in April, up from 2.6% in March, according to figures released by the Office for National Statistics (ONS).
All of a sudden, those much anticipated rate cuts seem less certain, and the prospect of a convincing and enduring revival of the mortgage market is up in the air once again. But is this reading, which was slightly above expectations, cause for great concern or is this a temporary blip before we return to a period of economic recovery. And, importantly, what does this mean for the upcoming Bank base rate decisions?
Mortgage expert Nicholas Mendes (pictured left), from London broker John Charcol, suggests that the latest inflation data could be a turning point for interest rates and mortgage pricing. “Headline inflation came in above expectations, even beating the Bank of England’s own 3.4% forecast,” Mendes reflected. “That alone would’ve been notable, but when combined with stronger-than-expected core and services inflation, it’s clear that underlying price pressures remain persistent. This raises a key question - could the Bank of England hold the base rate higher for longer than markets expected? Only a few weeks ago, markets were pricing in up to four rate cuts this year. That now looks overly optimistic. With (the Bank of England’s chief economist) Huw Pill already signalling a more cautious approach, today’s figures could shift expectations down to three cuts, or fewer. We’ve already seen swap rates, which heavily influence fixed-rate mortgage pricing, start to climb in recent days. That’s likely to continue as markets reprice the path of monetary policy.”
He continued: “Lenders had been reducing mortgage rates recently - that trend could now pause, or even reverse. Some lenders might reprice upwards modestly, while others hold off on further reductions until there’s more clarity. In short: the outlook for rate cuts just got cloudier. While we don’t expect a sharp rise in mortgage rates, the window for further reductions may be narrowing. Competitive mortgage rates are still out there, but the landscape is shifting.”
George Binnington (pictured second from left), mortgage and insurance broker at Binnington Mortgages, is taking a pragmatic approach to this latest development. “While April’s inflation spike was somewhat expected due to household bill increases, I think the Bank of England will hold off cutting the base rate at their June meeting, likely delaying any movement until later in the year,” he said. “A rate hike seems very unlikely, given the focus on supporting economic growth. For mortgages, this data will probably slow or pause the recent wave of lender rate reductions. That said, I don’t expect sharp increases either. Lenders are still competing for business and will be mindful of a more positive medium-to-long-term outlook.”
For Katrina Horstead (pictured second from right), co-founder and director of brokerage Versed, the recent uptick in inflation may prompt a degree of caution from the Bank of England, particularly when it comes to the timing of any base rate reductions. “However, unless we see a sustained trend of higher inflation, it’s unlikely to significantly alter the broader narrative that rates are on a downward path,” Horstead reasoned. “The BoE will need to remain mindful of the delicate balance between curbing inflation and supporting a still fragile economic recovery, particularly in the housing and mortgage markets.”
Read more: Why the BoE's base rate cut is more impactful for the mortgage market than tariff changes
Was higher inflation expected?
A rise in inflation was hardly a shock, suggests John Phillips (pictured right), CEO of Just Mortgages and Spicerhaart, given the fact that April marks the start of the new financial year and brought with it a wave of inflationary price hikes. Most notably among these were increases to energy and water bills.
“The big question is how will this impact the future path of interest rates,” said Phillips. “What we do know is the central bank has been clear it expected this rise in inflation and knows full well it is likely to creep up further before eventually coming down. The real elephant in the room is the impact of Trump’s tariffs on global economies and international trade, which is still unknown. With plenty of uncertainty, it’s likely we could see a pause in June before returning to cuts later in the year.
“Base rate strategy has long been a tug of war between managing inflation and stimulating economic growth. While inflation has risen and is expected to increase, it does feel like the overall momentum is still shifting towards stimulating growth, particularly with the threat of economic uncertainty on the global stage. Borrowers are seizing the opportunities available to them now with significant rate reductions across the market and increasing innovation.”
He added: “Brokers remain busy as an ever-changing market continues to demonstrate the value they can offer in navigating options and securing the best possible deal.”
This particular ‘bump in the road’ was widely expected, according to Ben Thompson (pictured inset above), deputy CEO of Mortgage Advice Bureau. “Inflation rising to 3.5% shouldn’t discourage homebuyers from taking their first, or next step on the property ladder, especially with summer proving the most popular time to move,” Thompson commented. “With more innovation across the market than ever before, including a host of sub-4% rates, there’s never been a better time to buy.”
Simon Webb (pictured inset above), managing director of capital markets and finance at later lender, LiveMore, believes the inflation figures show that price pressures remain, and also highlight the resilience of the UK economy in navigating prolonged volatility. “Although a base rate cut may be delayed, the market has already priced in some of this expectation,” Webb said. “We’re seeing growing demand from older homeowners who want to make the most of their property wealth in uncertain times, whether to support retirement, help family members, or simply improve quality of life. Inflation may still be a factor, but so is adaptability, and the later life lending market is stepping up to meet that challenge.”
Meanwhile, Peter Stimson, director of mortgages at the lender MPowered, believes that the industry is in ‘handbrake on’ territory. “We expected a jump, but what we got was a leap, in both headline and core inflation,” Stimson said. “Getting inflation under control, and forcing it back down towards its 2% CPI target, is once again the Bank’s top priority. It will have its work cut out. The swaps market, which determines mortgage interest rates, had already been pricing in a jump in inflation and a delay in the next base rate cut. But with Britain’s inflationary problem back with such vengeance, the odds on a base rate cut in August have lengthened too. The path towards lower interest rates will be longer and slower than thought as recently as just a few weeks ago.”
Stimson added: “For now, mortgage rates have fallen as far as they can and we may even see them creep up over the next few weeks as lenders recalibrate their pricing in response to rising swap rates.”
