Will rising inflation halt mortgage fee cuts? Today’s spike might spell unhealthy information for debtors
- Mortgage rate cuts likely to stall after inflation rose by more than expected
Today’s spike in the rate of inflation could put an end to the mortgage rate cuts borrowers have enjoyed in recent months, experts have warned.
CPI inflation rose to 3.4 per cent in December, according to the latest figures from the Office For National Statistics, up from 3.2 per cent in November.
It is the first time CPI has risen since June, and leaves it stuck well above the Bank of England’s 2 per cent target.
An interest rate cut next month by the Bank of England now looks unlikely with the base rate now set to stay at 3.75 per cent.
In recent months, mortgage rates have fallen. Three months ago, the lowest fixed rate deals were around 3.85 per cent.
Now they are around 3.5 per cent, with the cheapest rates usually reserved for those with the largest deposits.
However, mortgage rates are linked to the base rate so that progress looks set to stall.
CPI inflation rose to 3.4 per cent in December, according to the latest figures from the Office For National Statistics, up from 3.2 per cent in November.
Peter Stimson, director of mortgages at the lender MPowered, said: ‘The prospect of a February base rate cut is fading faster than many people’s New Year gym attendance.
‘Many of the biggest lenders started 2026 by shaving their fixed interest rates in an effort to steal a march on each other.
‘That rate-cutting momentum could now stop in its tracks and the great deals we’ve seen in recent days may be short-lived.’
The average two-year fixed rate across all deposit sizes is 4.77 per cent, according to Moneyfacts, while the average five-year fix is 4.87 per cent.
David Hollingworth, associate director at broker L&C Mortgages also thinks that the rise in inflation will mean borrowers may have to wait for another rate cut before deals get any cheaper.
‘Mortgage borrowers were buoyed by a cut to base rate in December, but today’s inflation figures may mean they will have to wait longer for another move,’ he said.
‘Fixed rates are already factoring in further reductions to base rate, but the Bank of England has been clear that those will only come when it feels confident that the downward path for inflation is sustainable.
‘Today’s news isn’t likely to see a major market reaction that undoes all that positive movement, but it could mean that we’re in for a period where the brakes are applied and mortgage rates flatten out.’
When will the next interest rate cut happen?
The expectation is that interest rates will continue to fall further in 2026. This is partly because inflation is predicted to ease off, despite the rise reported for December.
The CPI rate of inflation is expected to average about 2.5 per cent in 2026, according to the Office for Budget Responsibility, before returning to the bank’s 2 per cent target in 2027.
Sarah Coles, head of personal finance at investing platform Hargreaves Lansdown thinks the next cut will come in April as expected by markets.
‘Like the best kind of seasonal weight gain, the bump in inflation in December is likely to be a short-lived phenomenon, and it’s expected to drop again in January,’ she said.
‘It means these figures are unlikely to have much impact on the Bank of England’s rate cutting decisions.’
Peter Stimson added: ‘All things being equal, the Bank of England is likely to push its next base rate cut back to April or June at the earliest.’
