Some of the questions you have might include: what is inflation, what are mortgage interest rates, and how does inflation affect those interest rates? In this article we aim to answer those questions and any other questions you may have regarding this topic.


Inflation refers to the general rise in the prices of goods and services over time. It’s usually calculated as a percentage change in a price index, such as the Consumer Price Index (CPI), which records the average price of regularly used products and services. 

Inflation reduces the buying power of money, which means that the same amount of money can purchase fewer products or services over time.

Mortgage interest rates

Mortgage interest rates are what lenders charge borrowers for being loaned the money to buy a property. Borrowers that take out a mortgage to purchase a home borrow money from a lender and agree to return the loan over a certain period of time, with interest. 

Mortgage interest rates can be fixed, which means they remain constant during the loan term, or variable, which means they can fluctuate on a regular basis depending on changes in underlying rates (such as the Bank of England's base rate).

A mixed selection of British coins

How does inflation affect mortgage interest rates?

Inflation itself does not directly determine mortgage interest rates. Instead, central banks, like the Bank of England, set their policy interest rates based on their assessment of overall economic conditions (such as inflation). When inflation rises, central banks may respond by increasing interest rates in an attempt to curb inflationary pressures and maintain price stability. Higher bank rates can influence mortgage rates, making them more expensive for borrowers.

Higher inflation can also lead to increased borrowing costs for banks and financial institutions. This can result in lenders passing on these increased costs to borrowers in the form of higher mortgage interest rates.

Mortgage interest rates can also be influenced by market expectations of future inflation. If investors and lenders anticipate higher inflation in the future, they may demand higher interest rates to compensate for an erosion of purchasing power over time. Consequently, mortgage rates may rise in response to inflation expectations.

Inflation is typically a reflection of the state of the economy. When the economy is growing strongly and inflation is rising, demand for borrowing may increase, putting upward pressure on interest rates. Conversely, if inflation is low and the economy is weak, central banks may reduce interest rates to stimulate borrowing and economic activity, potentially leading to lower mortgage rates.

What else affects mortgage interest rates?

It's important to note that while inflation is one factor that can influence mortgage interest rates, it’s not the sole determining factor. Other factors, such as the cost of funds for lenders, market competition, regulatory policies, and the overall economic climate, also play a role in setting mortgage rates.

Please keep in mind that economic conditions can change, and mortgage interest rates are subject to a variety of factors. It’s recommended that you consult with one of our mortgage advisers for the most up-to-date and accurate information regarding mortgage rates in the UK.

How do interest rate rises affect me?

If you have a mortgage in the UK, it’s very likely that interest rate rises will affect how much you pay. If you have a fixed rate deal locked in, your interest rate will not change until your fixed term ends.

Tracker mortgages

Tracker mortgage rates fluctuate in relation to another rate - often the Bank of England's base rate, plus a few percentage points. Tracker rates typically last two to five years before returning to a standard variable rate (SVR), so if you're towards the end of your term, you may try to convert to a fixed rate in an attempt to get a lower interest rate. Some tracker rates, on the other hand, can last the life of your mortgage.

Fixed rate mortgages

A fixed rate mortgage is a type of mortgage in which the interest rate and monthly repayment amount remains unchanged for a prearranged period of time. The advantage of a fixed rate mortgage is that it offers stability and predictability, as the borrower knows exactly how much they need to pay each month. This makes budgeting easier and safeguards against potential interest rate increases. Once the term expires, the deal can be remortgaged, or it drops to the SVR, which will fall or rise in line with national interest rates.

Person's hands pointing towards a graph

Why are interest rates rising?

The Bank of England sets the standard interest rate across the country. You may have heard it referred to as the 'base rate' or the 'Bank Rate'. While the bank rate has been low for more than a decade, economic uncertainties prompted the Bank of England to raise this in an attempt to control inflation. 

Changes in interest rates affect not just mortgages, but also credit cards, loans, and the potential return on savings. In contrast to mortgage rates, you are unlikely to see as big of an impact on your savings from interest rate rises.

Talk to one of our advisers

If you’re interested in remortgaging - get in touch today. One of our expert advisers will be able to navigate through a huge number of different lenders and deals to help find you the deal that best suits your current circumstances.

Important information

You may have to pay an early repayment charge to your existing lender if you remortgage.

Your home may be repossessed if you do not keep up repayments on your mortgage.

There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.

Related Articles

Does it matter if the market is going up or down?

If you are buying and selling a home, how much does the housing market matter?
Read more

How does remortgaging work?

Learn exactly what remortgaging is, how it works and the important things to consider.
Read more

What is a fixed mortgage deal?

Choosing how long to fix your mortgage for depends on a range of factors. Here's your quick guide to deciding on the right mortgage deal for your circumstances.
Read more
My MAB app

Download the Mortgage Advice Bureau app

Our app is a digital mortgage coach designed to help you save up, plan, and track your home buying journey – whether you’re buying your first home, or just fancy a move.

We’ll guide you through step by step to ensure you always know what’s coming up next.

Apple app store logo
google play app download