Inflation Spike Rattles Mortgage Market: Will Interest Rates Hold in June?

The UK’s inflation rate has unexpectedly surged to 3.5% in the 12 months to April, a development that’s sent fresh shockwaves through the housing and mortgage markets. This spike—revealed by the Office for National Statistics (ONS)—is higher than predicted and casts doubt over the Bank of England’s plans to begin cutting interest rates in June. Property professionals, lenders, and mortgage brokers are now grappling with the consequences, warning that affordability could worsen and recovery in the housing market might be delayed.

A Jarring Wake-Up Call for the Mortgage Sector

While a modest uptick in inflation was anticipated, the scale of the increase has intensified speculation that the Bank of England may pause or delay its expected rate cuts. The central bank’s next rate-setting meeting on June 19 now hangs in the balance, as policymakers weigh the risk of persistent inflation against the need to stimulate economic growth.

Economic Headwinds Are Blowing Harder

Daniel Austin, CEO of ASK Partners, captured the complexity of the situation, saying that the inflationary surprise underscores how difficult it is for the Bank to balance global instability, including Trump-era tariff fears, alongside domestic fiscal pressures. According to Austin, hopes for cheaper borrowing costs remain—but real relief is yet to be felt.

“For homeowners and buyers, hopes of lower borrowing costs remain high, but persistently elevated fixed mortgage rates could delay any real relief.”

He added that while sectors like co-living and build-to-rent remain attractive to investors due to demand and supply imbalances, the lack of a stable, downward rate trajectory continues to create uncertainty.

Older Borrowers Seek Certainty Over Speculation

For older homeowners, the inflation spike has reinforced the importance of long-term financial planning. Simon Webb, Managing Director at LiveMore, emphasized that despite inflation’s grip, the market had already priced in some of this risk.

“Although a base rate cut may be delayed, many lenders – including LiveMore – continue to offer competitive rates for over-50s seeking to unlock property wealth in uncertain times.”

Webb pointed to increasing demand from later-life borrowers looking to improve retirement finances or assist family members amid economic turbulence.

Seasonal Inflation or Structural Challenge?

John Phillips, CEO of Just Mortgages and Spicerhaart, pointed to seasonal factors contributing to the spike—April being the start of the UK’s fiscal year, which brought increased energy prices, water bills, and minimum wage costs.

“The central bank expected this inflation rise. It’s likely to creep up before coming back down again. But with ongoing uncertainty, a pause in June’s rate cut is very much on the table.”

Despite these challenges, Phillips noted that the current market continues to present opportunities for borrowers, thanks to rate innovation and competition among lenders. Brokers, he added, are playing a key role in helping clients navigate the complex landscape.

Stamp Duty Deadlines and Short-Term Distortions

Nick Hale, CEO at Movera, warned that inflation may have been artificially boosted by the March stamp duty deadline, which caused a flurry of homebuying activity and associated spending on related services and goods.

“That momentum can temporarily feed through to inflation, even if it’s unlikely to persist.”

Hale underscored the importance of providing certainty and confidence to movers during economically unstable periods, especially as affordability remains a core concern.

Affordability: The Real Victim

Persistent inflation is already pushing affordability to the brink. Richard Pike, Chief Sales and Marketing Officer at Phoebus, said that regulated price hikes—particularly in utilities and wages—are making it harder for both new buyers and those refinancing to manage monthly payments.

“A longer wait for rate cuts means continued pressure on affordability... While lenders have shown a willingness to compete, volume recovery may be more gradual.”

Pike believes the market’s resilience will be tested over the next quarter, as borrowers look for relief amid stagnant wages and higher bills.

Buyers Urged to Stay Confident

Despite the economic headwinds, Ben Thompson, Deputy CEO at Mortgage Advice Bureau, remained optimistic, noting that seasonal momentum and a host of sub-4% mortgage rates are keeping the market afloat.

“Inflation rising to 3.5% shouldn’t discourage homebuyers from taking their next step, especially during the busy summer season.”

Thompson encouraged potential buyers to consult mortgage brokers to find the best deals, adding that innovation across the sector is helping more people become mortgage-ready sooner than expected.

Housing Market Remains Crucial to Economic Growth

According to Nathan Emerson, CEO of Propertymark, while the inflation spike is unwelcome, the broader goal must remain focused on economic growth, to eventually return inflation to the Bank of England’s 2% target.

“Housing plays a central role in boosting overall growth in the UK... Despite turbulence in early 2025, momentum is expected to carry into the summer.”

He noted that the inflation reading may delay rate cuts, but as soon as they do happen, the return of competitive mortgage products will likely reignite the housing market.

Developers Warn of Long-Term Consequences

From a developer’s perspective, rising inflation and funding costs are jeopardizing project viability. Martyn Smith, CEO of Black & White Bridging, cautioned that without consistent policy support, the development pipeline could falter.

“Even small shifts in sentiment can derail projects. The government mustn’t let short-term volatility overshadow long-term goals.”

Smith reiterated the importance of sustained policy incentives to keep housing development on track, especially given the ongoing supply shortage.

What Happens Next?

The inflation surge to 3.5% has thrown the Bank of England’s June decision into doubt. While many stakeholders had anticipated a base rate cut to provide relief to households and businesses, the latest CPI data suggests that the Bank may need to wait longer before loosening monetary policy.

With over 1.5 million fixed-rate mortgage deals due to expire in 2025, many borrowers now face the prospect of refinancing at higher rates. And while sub-4% deals are emerging, especially for those with solid credit and larger deposits, the broader affordability crisis persists.

Final Thoughts

The path forward remains fraught with uncertainty. Inflation is proving stickier than expected, and the mortgage market must adapt to a more complex reality. Yet amid the challenges, opportunities persist—for those who act decisively and seek expert guidance.

Need help navigating rising mortgage rates and affordability concerns?

Let Parachute Law guide you through the legal side of buying, selling, or refinancing your property. With expert solicitors, fixed fees, and tailored support, you can move forward with confidence—no matter the economic climate.

Speak to a property law expert at Parachute Law today