Mortgage Rates Are Rising Again: Why Major Lenders Are Hiking Prices and What Borrowers Should Do Now

The immediate trigger for the latest round of mortgage repricing is the sustained elevation in UK gilt yields. The 10-year gilt yield — the benchmark that most heavily influences fixed-rate mortgage pricing — stood at 4.48% in December 2025, having climbed steadily from a low of 3.91% in September 2024. That represents an increase of roughly 57 basis points in just 15 months, and the impact has filtered directly through to the swap rates that lenders use to price their fixed-rate products.

Swap rates — the wholesale rates at which banks can lock in funding for fixed-rate mortgages — are closely tied to gilt yields. When gilts sell off (yields rise), swap rates follow, and lenders must either absorb the higher costs or pass them on to borrowers. With margins already compressed after a period of fierce competition, most lenders have chosen the latter path. The result: headline two-year and five-year fixed rates that had been edging below 4.5% are now creeping back above that threshold at several major banks.

It is worth noting that this is not a repeat of the mortgage market chaos seen after the September 2022 mini-Budget, when gilt yields spiked violently and lenders pulled products overnight. The current move is more gradual — but for borrowers who delayed locking in a rate, the direction of travel is nonetheless painful.

The underlying driver of higher gilt yields — and therefore higher mortgage rates — is the UK's persistent inflation problem. CPI inflation ended 2025 at 3.4%, having spent the entire second half of the year above 3%. The broader CPIH measure, which includes owner-occupiers' housing costs, was even higher at 3.6% in December 2025. Both figures remain well above the Bank of England's 2% target, and the trajectory has been deeply disappointing for policymakers.

After falling sharply through the first half of 2024 — from 4.0% in January to 1.7% in September — CPI roared back, hitting 3.0% in January 2025 and peaking at 3.8% between July and September 2025. Services inflation, wage growth, and the knock-on effects of the April 2025 employer National Insurance rise to 15% on earnings above £5,000 have all contributed to keeping price pressures elevated.

For the Bank of England's Monetary Policy Committee (MPC), this creates an acute dilemma. Financial markets had priced in a series of base rate cuts through 2025, but with inflation proving far stickier than forecast, the pace of easing has been far slower than hoped. Each delayed rate cut feeds directly into mortgage pricing expectations, as lenders price in a 'higher for longer' interest rate path.

Complicating the picture further is the deterioration in the UK labour market. The unemployment rate has risen steadily from 4.4% in late 2024 to 5.1% by October 2025 — its highest level since the aftermath of the pandemic. That represents a meaningful softening, with an estimated 200,000 additional people out of work compared to a year earlier.

Ordinarily, rising unemployment would be expected to dampen inflation and give the Bank of England room to cut rates more aggressively. But the UK is currently experiencing something closer to 'stagflation lite' — weakening economic activity alongside persistent price pressures. Average weekly earnings have continued to grind higher, rising from approximately £665 per week in late 2024 to £689 per week by November 2025. Nominal wage growth of around 3.6% is welcome for workers, but it adds to the inflationary pressures that prevent the MPC from cutting as fast as the economy might otherwise need.

For mortgage borrowers, the labour market weakness introduces a second risk beyond rate rises: the risk of income disruption. Those stretched by higher mortgage payments face a more precarious employment backdrop than at any point in recent years. Lenders, for their part, are mindful of this too — affordability stress-testing has, if anything, tightened in recent months.

The practical implications vary depending on where you sit in the housing market. For those approaching the end of a fixed-rate deal, the window of opportunity to lock in sub-4.5% rates on two-year and five-year fixes appears to be narrowing. Most brokers advise that borrowers can typically secure a rate up to six months before their current deal expires, and in the current environment, acting sooner rather than later has clear advantages.

For first-time buyers, the picture is particularly challenging. Stamp duty land tax relief for first-time buyers currently offers 0% on the first £425,000 for properties valued up to £625,000, but higher mortgage rates eat directly into purchasing power. A buyer borrowing £300,000 on a 25-year term at 4.5% faces monthly repayments of approximately £1,668. At 5.0%, that figure rises to around £1,754 — an additional £86 per month, or more than £1,000 per year. With the additional property surcharge now standing at 5% following the October 2024 increase, buy-to-let investors and second-home purchasers face even steeper economics.

Those currently on a Standard Variable Rate (SVR) are likely paying well above 6% — significantly more than the best fixed deals available. If your fixed deal has already expired and you've reverted to your lender's SVR, remortgaging onto a new fixed rate should be an immediate priority, even if the rates on offer are higher than you might have hoped. The gap between SVR and fixed rates remains substantial enough to make switching worthwhile for the vast majority of borrowers.

For those with larger deposits or significant equity — a loan-to-value (LTV) of 75% or below — the best rates remain materially lower than those available to higher-LTV borrowers. If you're in a position to make an overpayment or increase your deposit to cross a key LTV threshold, this could save thousands over the life of a mortgage.

The honest answer is that nobody knows with certainty — but the data provides some useful guideposts. For mortgage rates to fall meaningfully, one or more of the following conditions need to be met: CPI inflation must return convincingly towards the 2% target; the Bank of England must resume cutting the base rate at a steady pace; and gilt yields must ease back from their current elevated levels.

On inflation, the December 2025 reading of 3.4% was a modest improvement on the 3.8% seen in mid-2025, suggesting the worst of the second inflationary wave may be passing. However, the April 2025 employer NIC increases are still working through the system, and energy price movements remain unpredictable. Most economists expect CPI to drift gradually lower through 2026, but a return to 2% is unlikely before the second half of the year at the earliest.

The Bank of England's next moves will be critical. The base rate was reduced from its peak of 5.25% during 2024, but the pace of cuts has been far slower than markets initially anticipated. With inflation still elevated and the labour market sending mixed signals, the MPC is likely to proceed cautiously. Market pricing currently implies two to three further quarter-point cuts during 2026, which would bring the base rate into the 3.75%–4.00% range by year-end — but this is far from guaranteed.

For prospective borrowers, the key takeaway is to avoid paralysis. Waiting for the 'perfect' rate risks being caught out by further increases, while locking in now at least provides certainty of payments over the fixed period. Speaking with a qualified, whole-of-market mortgage broker remains the single most valuable step any borrower can take in this environment.