What Rising Inflation Means for Your Mortgage and Savings

After a steady decline earlier this year, inflation in the UK has crept up again, landing at 3.5% in April. For many homeowners and savers, this kind of headline figure can feel like just another number in the news cycle. But in practice, it has a very real impact on both your mortgage repayments and your savings.

Let’s break down what this shift in inflation means for you.

Inflation and Interest Rates: The Big Picture

The Bank of England uses interest rates as one of its main tools to control inflation. When inflation rises above the government’s 2% target, interest rates tend to stay higher for longer in an attempt to keep the economy in check.

The rise in inflation this April has made it less likely that we’ll see interest rates fall quickly or dramatically in the short term. While there were hopes earlier in the year that rates might be reduced more aggressively, economists are now predicting a slower pace, possibly only one more rate cut for the rest of 2025. In fact, some projections suggest that inflation may not return to the 2% target until 2027.

This directly affects mortgages and savings in different ways.

How Inflation Affects Mortgages

If you’re a homeowner or thinking about buying, inflation and interest rates are two sides of the same coin. Over the past couple of years, rising interest rates have made mortgage repayments more expensive for many people, especially those who came off fixed-rate deals and had to refinance at a higher rate.

Although interest rates have come down slightly this year, many mortgages still carry rates above 5%, particularly for higher loan-to-value products. At the other end of the scale, some competitive fixed-rate deals are now available below 4%, showing how much pricing varies depending on deposit size, credit profile, and lender appetite.

So where does inflation come into this? If inflation stays higher than expected, it becomes less likely that the Bank of England will lower interest rates in the near term. That, in turn, influences the rates lenders offer. Most mortgage products are priced based on market expectations, which are reflected in swap rates. These are forward-looking and respond quickly to inflation figures and policy signals.

In simple terms, if inflation is on the rise, it can dampen the prospects of more affordable mortgages appearing any time soon.

What This Means for Existing Borrowers

If you’re already on a fixed-rate deal, rising inflation won’t immediately change your monthly payments. However, if your deal ends in the next 6 to 12 months, the current inflation environment could influence the type of rate you’re offered when you remortgage.

For those on tracker or variable rate mortgages, any delay in a base rate cut means your repayments could stay higher for longer. Staying in close contact with a mortgage adviser is essential in this environment, especially if you’re considering switching products or moving home.

The Flip Side: What About Savings?

While higher inflation puts pressure on borrowers, it can be equally challenging for savers. When inflation rises and interest rates are expected to stay elevated, banks are less inclined to offer competitive savings rates.

Already this year, savings rates have dipped slightly. At the start of 2025, we saw easy access accounts paying around 5%. Now, most hover just above 4%, and the competition has slowed.

The key issue here is that if inflation continues at 3.5% and your savings earn only 4%, the real value of your money barely grows. Worse, if your rate is below inflation, the purchasing power of your cash is effectively shrinking.

Let’s put it another way. If inflation averages 3% for the next two years, £100 in your savings account will only be worth around £94 in real terms by the end of 2026. This is why it is so important to review your savings accounts regularly. Make sure you’re getting the best rate possible, and consider whether a fixed-rate ISA or even longer-term investing might suit your goals.

Final Thoughts

Rising inflation doesn’t just affect abstract economic indicators. It shapes your household budget, your mortgage repayments, and the return on your savings. Whether you’re buying your first home, managing a remortgage, or planning for the future, staying informed about inflation and interest rate trends can help you make smarter financial decisions.

If you’re unsure what this means for your mortgage or savings, now is a great time to give me a call. Understanding your options could save you money - or help protect what you’ve already worked hard to build.