Understanding Inflation and it’s Impact on UK Mortgages


Inflation in the UK has been a hot topic in recent months, with figures rising to a 10.4% high in February. However, the latest statistics from the Office for National Statistics (ONS) show that inflation has fallen to 10.1% in March. This is good news for UK households, as the drop in inflation came due to a drop in global oil prices in recent months, which offset the impact from Russia’s invasion of Ukraine in February.

Rising Food Prices

Despite this positive development, food and drink prices rose at the fastest annual rate since 1977, driven by a record growth in the price of bread and cereals. The cost of food rose 19.1% in the year to March, with fruit, chocolate and confectionery, and meat prices also soaring. The rise in food prices is likely to add pressure on the poorest households in Britain, who spend a larger share of their income on basic essentials than richer ones. This could have an adverse impact on these households, causing a decline in their living standards.

Impact on Interest Rates

The rising inflation figures have resulted in the odds of the Bank of England raising interest rates again next month to increase. Markets are now pricing in a 97% chance that policymakers will lift the base rate to 4.5% on 11 May, with the possibility of it hitting 5% by the autumn. The Bank of England had already raised interest rates for the 11th time in a row in response to high inflation, and the latest inflation figures are likely to add to the pressure on the bank to raise interest rates further.

Positive Impacts of Interest Rate Increase

However, there are some positives to be found in the current situation. An increase in interest rates could actually have a stabilising effect on the economy in the long term. By increasing the cost of borrowing, it could lead to a decline in spending and investment, which would help to reduce inflationary pressures. Additionally, the Bank of England has indicated that it will continue to monitor the situation closely and will take action if necessary to prevent inflation from spiraling out of control.

Impact on Mortgage Borrowers

The increase in interest rates is likely to have an impact on mortgage borrowers in the UK, as the cost of borrowing is likely to increase. Those with variable rate mortgages or tracker mortgages, which are linked to the Bank of England base rate, will see their monthly mortgage payments increase as interest rates rise. However, those with fixed-rate mortgages will be unaffected during the fixed term of their mortgage, but may face higher payments when their mortgage comes up for renewal.

Ways to Protect Against Future Interest Rate Rises

Despite the potential challenges facing mortgage borrowers, there are ways in which they can protect themselves from future interest rate rises. Fixing the interest rate on a mortgage can provide peace of mind and allow for more accurate budgeting. Making overpayments on a mortgage can reduce the overall amount owed and the term of the mortgage, resulting in lower interest charges over the long term. A longer fixed-term mortgage, such as a 10-year fixed-rate mortgage, can provide greater certainty and protection against future interest rate rises.

Reserving Interest Rates

You can actually reserve an interest rate for future use! So if interest rates continue to climb, you can revert back to the rate you initially reserved. We explain how this process works in our video-explainer below.


At Prospect Tree Mortgages, we understand the challenges facing mortgage borrowers in the current economic climate. That’s why we offer tailored mortgage advice to help our clients find the best mortgage deal for their needs and circumstances. Our team of expert advisors can help you navigate the complex world of mortgages and provide you with the information

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