When inflation rises, the Bank of England considers raising its base rate. This is done as an attempt to bring inflation back down, though of course it’s not a guarantee. When the base rate changes, mortgage lenders usually follow, pushing up rates on new and variable deals. In this article, we’ll cover exactly how that works, and what it could mean for your monthly payments. At the time of writing, the current bank rate is expected to stay at 3.75% until the end of 2026 and fall to 3.5% before June 2027.
"The latest rise in inflation was not a huge surprise, but the key question for mortgage borrowers is what it means for the Bank of England's next move. Fixed mortgage rates are based on where lenders expect rates to go, rather than simply today's bank rate.
"Whether you're a first time buyer or remortgaging, it's worth exploring your options sooner rather than waiting to see what happens. Securing a rate you're comfortable with now can be a smarter move than holding out for the chance of a better deal.
"Speaking to a mortgage adviser can also help you understand what you can actually borrow. We recently found that 73% of first time buyers don't realise 95% LTV mortgages exist, while half underestimate how much their borrowing power has improved."
Rachel Geddes
Strategic Lender Relationship Director
What is the current inflation rate and base rate?
The latest UK inflation figure is 3.6%. This is measured by the Consumer Prices Index (CPI) in the 12 months to September 2026. It was up from 3.3% in the month prior.
The Bank of England's inflation target is 2%, as set by the Government. So inflation remains above target.
The Bank of England's bank rate (also known as base rate) is the official interest rate set by the Bank of England to charge commercial banks for borrowing money. It is currently 3.75%. The rate was held at the Monetary Policy Committee (MPC) meeting on 17 September. Its next decision is due on 5 November 2026.
How does inflation work?
The cost-of-living crisis means we’ve all seen high inflation in action. Everything seems to cost more, from a pint in the pub to your gym membership.
Inflation is how much prices rise over time. The Office for National Statistics (ONS) tracks this by watching the price of everyday things like food, energy, transport, clothing. If inflation is 2%, a sample "basket" of everyday goods costs 2% more than it did a year ago.
That doesn't mean everything gets pricier at the same rate. Some things go up faster; others might even come down.
How does inflation affect mortgage rates?
Inflation and interest rates tend to move together. When inflation is high, the Bank of England often raises interest rates to make borrowing more expensive. That usually means people will want to spend less, which helps bring price rises back under control. Mortgage rates usually follow the same direction.
In simple terms:
Higher inflation → pressure for higher interest rates → higher borrowing costs → potentially higher mortgage rates.
Use our Mortgage Repayment Calculator to find out how much your mortgage payments are likely to be based on interest rates and terms
Why do inflation expectations matter?
You may read a lot about “inflation predictions” in the news. That’s because markets look ahead, not just at today's inflation figure. They're trying to guess what happens next.
If they expect inflation to stay high, interest rates may remain higher for longer, pushing up lenders’ funding costs.
But if inflation is falling and markets think bank rate will drop, fixed mortgage rates can start to go down even before the Bank of England makes an announcement.
This is why mortgage rates sometimes move without a bank rate change. The good news is you don’t need to track all this yourself (thankfully) a mortgage adviser can tell you what the changes in the market mean and help you focus on what you can afford and when to act.
What are swap rates?
Swap rates can sound like City trading jargon, but the idea is simple. They’re the benchmark rates lenders use when pricing fixed mortgages. They’re based on what markets think will happen to interest rates over the coming months and years.
What matters for you is straightforward:
When swap rates rise, it usually costs lenders more to secure long term funding, so fixed rates tend to go up.
When swap rates fall, funding becomes cheaper, and fixed rates often come down.
You don’t need to analyse any of this yourself. Your mortgage adviser keeps an eye on it so you can focus on what you can afford and when to act.
Use our Mortgage Borrowing Calculator to help you work out how much you might be able to borrow
Why do swap rates matter more than bank rate for fixed deals?
A fixed rate mortgage protects you from bank rate changes for the fixed period. So you can set your budget and relax as your mortgage payments will stay the same.
But lenders are always looking ahead at what their funding costs might be.
That’s why fixed rates can move even when Bank rate stays the same. And why they sometimes rise before the Bank of England makes any announcement.
What else affects mortgage interest rates?
Inflation and swap rates are two factors that affect mortgage interest rates. Other things that come into play include:
Bank rate: particularly important for tracker mortgages and a factor in wider mortgage pricing
Market expectations: what investors think will happen to inflation and interest rates
Lender funding costs: the cost to lenders of raising money
Competition: lenders may cut rates to attract more business
The economy: wages, employment, spending and economic growth
Your situation: your loan-to-value, income and credit history
What do interest rate changes mean for my mortgage?
The effect depends on the type of mortgage you have.
Mortgage type | What happens if bank rate rises? |
Fixed rate | Your rate stays the same until the fixed period ends |
Tracker mortgage | Your rate will usually rise in line with bank rate |
Standard variable rate | Your lender can change the rate when it wants (but usually in line with bank rate) |
Discounted variable rate | Your rate will change when the lender changes its standard variable rate |
Fixed rate mortgage
If you have a fixed rate mortgage, changes to inflation and bank rate won't affect your monthly payment during the fixed period. So fixed rates are great for budgeting.
The important date is when your deal ends. If new mortgage rates are higher, your payments will probably rise when you remortgage. If new rates are lower, your payments could fall.
Tracker mortgage
A tracker mortgage usually follows bank rate plus or minus a set percentage.
For example, if your mortgage tracks at 0.5% above bank rate, and bank rate is 3.75%, your rate would be 4.25%.
If bank rate goes up by 0.25%
Bank rate would rise from 3.75% → 4.00%
Your tracker (0.50% above base) would move from 4.25% → 4.50%
If bank rate goes down by 0.25%
Bank rate would fall from 3.75% → 3.50%
Your tracker would drop from 4.25% → 4.00%
Standard variable rate
SVR stands for Standard Variable Rate. Every lender sets its own SVR.
The SVR is the interest rate your lender charges when your initial deal (like a fixed rate, tracker, or discount period) ends. You move onto it automatically unless you switch to a new mortgage deal or remortgage.
You need to keep an eye on things if you're on an SVR. Your lender can change the rate at any time, and SVRs don't necessarily have to move by the same amount as bank rate.
If you're on an SVR, it's well worth checking whether you could save money by switching to another deal.
What should you do now?
You don’t need to make a mortgage decision based on a single inflation reading or the current bank rate.
What matters more is when your current deal ends and how much you can afford to pay each month.
Wherever you’re starting from, there’s always a sensible next step. the examples below can help you figure out which one fits.
My fixed deal ends in the next six months
Start looking now.
You may be able to secure a new mortgage rate before your existing deal ends, giving you a starting point so you're not forced to accept whatever rate is available at the last minute. If rates improve before your new mortgage starts, you can usually switch to a better deal.
I'm on my lender's SVR
Check whether another mortgage could be cheaper. You may be able to remortgage to a fixed or tracker deal, depending on your circumstances. A mortgage adviser can help you do the sums.
Waiting for a bank rate cut isn't guaranteed to save you money. Fixed mortgage rates can move before the bank makes a decision.
I'm on a tracker
Keep an eye on the bank rate, as changes will feed through to your monthly payment. If you're happy with your tracker and can afford your payments, you may not need to switch. But if a higher payment would stretch your budget, it's worth discussing fixed rate options with a mortgage broker.
I'm buying my first home
You don't need to wait for inflation or bank rate to fall before buying a home. The right time to buy depends on being able to afford your mortgage payments and finding a home you want to live in.
Work out what you could afford at today's rates, but leave some room in your budget in case rates change.
I don't know whether to fix for two or five years
There's no right answer for everyone. A two-year fix gives you certainty for a shorter period and means you can review your mortgage sooner. A five-year fix gives you a longer-term view of what your payments will be, but it could leave you tied in for longer if rates fall.
If you want to leave a fixed rate mortgage before the end of the tied-in period, you normally have to pay early repayment charges.
A mortgage adviser can compare the options based on your circumstances, rather than trying to predict future rates.
Ready to chat? Our advisers are ready to call you back today. The first chat costs nothing and is totally free of obligation.
Something to bear in mind...
Frequently asked questions
Let's clear something up: a "swap rate mortgage" isn't something you'd ever apply for. The term sounds like a product, which is why it confuses people, but swap rates are just a behind the scenes measure lenders use.
They could, but it’s unlikely. The general consensus among experts is that bank rate will probably stay at 3.75% until at least the end of 2026, then fall to 3.5% by June 2027.
There's no one-size-fits-all answer, but you don't need to wait for the "perfect" moment. If your current deal is ending soon, or you're worried about rates moving before you buy, securing a rate you're comfortable with now can bring peace of mind.
Many lenders let you switch to a cheaper deal later if one comes along before your mortgage starts. A mortgage adviser can talk you through what makes sense for your circumstances.
If you're on a fixed rate, falling inflation won't change your monthly payments. Your rate is locked in for the length of your deal, whatever happens to inflation or the base rate.
Where falling inflation does help is when your fixed deal ends. Lower inflation can lead to:
Lower swap rates, which influence the cost of new fixed rate mortgages
Less pressure on the Bank of England to raise rates, and eventually the possibility of cuts
Cheaper fixed rate deals coming onto the market over time
So, while your current fixed rate won't move, falling inflation is good news for your next mortgage deal.
Yes, usually, though it depends on the lender and mortgage product. Some lenders may let you change to another product before the new mortgage starts if a cheaper rate becomes available.
A mortgage adviser can help you lock in a rate now and switch later if rates drop.
It depends on your mortgage balance, term and current rate.
For example, a £200,000 repayment mortgage over 25 years at 4% has a monthly payment of about £1,056. At 4.25%, the payment would be about £1,083. That's around £28 more a month, or £336 a year.
If you have a fixed rate, your payments will stay the same until the fixed period ends. If you have a tracker, your rate will usually rise when bank rate rises. If you're on an SVR or another variable rate, your lender is likely to increase your rate when the base rate goes up.
If your fixed deal ends soon, a rise in mortgage rates could mean a higher monthly payment when you remortgage. Checking your options early can help you prepare.