INFLATION rising from 3.2% to 3.4% in December is a “sobering reality check” to the mortgage market, brokers have warned.
The Consumer Prices Index (CPI) rose by 3.4% in the 12 months to December 2025, up from 3.2% in the 12 months to November, Office for National Statistics data revealed.
On a monthly basis, CPI rose by 0.4% in December 2025, compared with a rise of 0.3% in December 2024.
Alcohol and tobacco, and transport made the largest upward contributions to the monthly change in both CPIH and CPI annual rates.
Core CPI (excluding energy, food, alcohol and tobacco) rose by 3.2% in the 12 months to December 2025, the same rate as the 12 months to November.
The CPI goods annual rate rose from 2.1% to 2.2%, while the CPI services annual rate rose from 4.4% to 4.5%.
Brokers said the data is “sobering” and “a kick in the teeth for prospective borrowers”.
Sobering reality check
Darryl Dhoffer, Founder at Bedford-based The Mortgage Geezer, said hopes of sub-3% rates have been dashed.
He added: “The recent uptick in UK inflation to 3.4%, up from 3.2% in November, has delivered a sobering reality check to the mortgage market. Just as borrowers exhaled, hoping the worst was over, this reversal threatens a new cycle of pain. The mechanism is brutal but simple: sticky inflation forces the Bank of England to keep the base rate higher for longer.
“The bond markets react instantly. Investors, demanding better returns to offset inflation, sell off government bonds, causing gilt yields to rise. This is the recipe for disaster. Fixed-rate mortgages are priced off ‘swap rates’, which track these gilt yields closely.
“As yields spike, lenders panic, pulling their cheapest deals overnight to reprice them higher. For the 1.6 million homeowners rolling off cheap fixed deals this year, the window of opportunity is slamming shut, replacing hopes of sub-3% rates with a much harsher reality.”
Couldn’t be worse news
Samuel Mather-Holgate, Managing Director & IFA at Swindon-based Mather and Murray Financial, said the news is awful for those trying to get on the property ladder.
He continued: “With the threat of tariffs with the US coming down the tracks, this inflation data couldn’t be worse news for homeowners and aspiring buyers.
“If inflation stays high, or goes higher, rates won’t just not come down as quick. But we have a central bank governor who won’t blink at the opportunity to start raising them again. Rachel Reeves should be looking at measures she can put in place to alleviate inflation and possibly change the Bank of England’s mandate to focus on the economy.”
Kick in the teeth
David Stirling, Independent Financial Adviser at Belfast-based Mint Wealth Ltd, said mortgage rates will be affected.
He added: “This news is a kick in the teeth for prospective borrowers looking to secure lower rates in 2026. If inflation stays high, it’s much more difficult for the Bank of England to decide to reduce the base rate.
“The poly-crisis we are facing is further enhanced by Donald’s latest tariff tantrum, uncertain swap rates between banks and a continuing malaise in the economy. These all point to mortgage rate changes being precariously balanced for the immediate time being.”
