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Inflation stays at 3.8%: "Borrowers shouldn’t expect an immediate fall in mortgage rates"

ended 17. September 2025

THOUGH inflation remained at 3.8% in the 12 months to August 2025, unchanged from July, according to official data published this morning, brokers have warned mortgage rates are unlikely to come down for now, as prices are still considerably higher than the Bank of England's 2% target. 

On a monthly basis, CPI rose by 0.3% in August 2025, the same rate as in August 2024. Air fares made the largest downward contribution to the monthly change in both CPIH and CPI annual rates; restaurants and hotels, and motor fuels made large, partially offsetting, upward contributions.

Craig Fish, Director at London-based Lodestone Mortgages, said lenders are likely to remain cautious for now: “Don’t be lulled into thinking today’s inflation figure means the cost-of-living crisis is easing. CPI may have held steady at 3.8%, but everyday life still feels more expensive for most households. 

“Borrowers shouldn’t expect an immediate fall in mortgage rates, as lenders will remain cautious until they see consistent evidence of inflation cooling. As for the property market, demand is likely to stay resilient due to a shortage of homes for sale, but higher borrowing costs will continue to act as a handbrake on activity.”

Babek Ismayil, Founder at homebuying platform, OneDome, agreed rates are unlikely to come down but equally said they may not rise too much further: "Lenders have been slowly increasing rates over the past month or so, in part due to stubborn inflation. Inflation staying at 3.8% is unlikely to see rates come down but equally it may avert further material increases for now.

“Inflation is still almost twice the Bank of England target and until it starts edging down, the Bank of England's hands may be tied.”

Emma Jones, Managing Director at Runcorn-based Whenthebanksaysno.co.uk commented: “Though inflation has held at 3.8%, borrowers should not expect rates to come down for the time being. There is a lot of caution among lenders at present with the economy flatlining and the government in crisis.

"Tomorrow's Bank of England rate decision could give us more insight into where mortgage rates are likely to go next.”

Justin Moy, Managing Director at Chelmsford-based EHF Mortgages, also warned borrowers to not raise their hopes: "This is a little better than predicted, but it's still a long way off the imposed Bank of England target of 2%.

"Mortgage rates have increased a little in September for those looking for a new fixed-rate deal, so we shouldn't expect any significant changes in the coming weeks unless other pressures within the economy override this. Borrowers shouldn't expect any major rate cutting for some time yet."

Eamonn Prendergast, Chartered Financial Adviser at Bromley-based Palantir Financial Planning Ltd, added: “Elevated inflation keeps pressure on household budgets, that means reviewing budgets, stress-testing repayments and making overpayments where possible to chip away at balances.”

6 responses from the Newspage community

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Craig FishVerified
Director at Lodestone Mortgages
Don’t be lulled into thinking today’s inflation figure means the cost-of-living crisis is easing. CPI may have held steady at 3.8%, but everyday life still feels more expensive for most households. With the energy price cap set to rise again, wage growth pushing upwards, and food prices showing no sign of softening, pressures are far from over. Borrowers shouldn’t expect an immediate fall in mortgage rates either, as lenders will remain cautious until they see consistent evidence of inflation cooling. As for the property market, demand is likely to stay resilient due to a shortage of homes for sale, but higher borrowing costs will continue to act as a handbrake on activity. In reality, these figures may flatter the Chancellor, but they don’t change what’s happening on the high street.
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Justin MoyVerified
Managing Director at EHF Mortgages
This is a little better than predicted, but it's still a long way off the imposed Bank of England target of 2%. Mortgage rates have increased a little in September for those looking for a new fixed-rate deal, so we shouldn't expect any significant changes in the coming weeks unless other pressures within the economy override this. Borrowers shouldn't expect any major rate cutting for some time yet.
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Babek IsmayilVerified
CEO at homebuying platform OneDome
Lenders have been slowly increasing rates over the past month or so, in part due to stubborn inflation. Inflation staying at 3.8% is unlikely to see rates come down but equally it may avert further material increases for now. Inflation is still almost twice the Bank of England target and until it starts edging down, the Bank of England's hands may be tied.
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Emma JonesVerified
Managing Director at Whenthebanksaysno.co.uk
Though inflation has held at 3.8%, borrowers should not expect rates to come down for the time being. There is a lot of caution among lenders at present with the economy flatlining and the government in crisis. Tomorrow's Bank of England rate decision could give us more insight into where mortgage rates are likely to go next.
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Eamonn PrendergastVerified
Chartered Financial Adviser at Palantir Financial Planning Ltd
Elevated inflation keeps pressure on household budgets, that means reviewing budgets, stress-testing repayments and making overpayments where possible to chip away at balances. For savers, it’s another reminder that cash alone is unlikely to keep pace with rising prices, long-term investments remain key to protecting real wealth.
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David BelleVerified
Founder and Trader at Fink Money
Though inflation held steady, this is still a headache for the Bank of England. Across the pond, US CPI came in at 2.9% versus 3.8% here. This suggests inflation is much more a UK problem than elsewhere. This will likely impede growth since Reeves will be raising tax while the Bank of England has to hold rates higher. Bond buyers might be happy to buy at these yields, though, since there has not been a greater than consensus print here, implying perhaps a US interest rate cut drives global yields lower.