Mortgage costs surge despite stable inflation as markets price in higher rates
Average 2-year fixed costs rise sharply as borrowers face “calm before the storm”.
Mortgage costs have risen sharply in recent weeks despite inflation holding steady, as markets react to rising energy prices and shifting interest rate expectations.
The Consumer Prices Index remained at 3.0% in the 12 months to February 2026, unchanged from January, while core inflation edged up to 3.2%.
However, lenders have continued to increase pricing, with the average cost of a 2-year fixed mortgage climbing significantly since the beginning of March as swap rates rise.
David Hollingworth, associate director at L&C Mortgages, said: “The rate of inflation was expected to remain stable in February but today’s figures will be of little comfort to mortgage borrowers, who are already reeling from the impact of the conflict in March.
“The sharp change in outlook for inflation as a result of rising oil and gas prices has already sent mortgage rates substantially higher than at the beginning of March.
“Markets are anticipating that interest rates will remain higher for longer and are now factoring in interest rate rises.
“That’s a far cry from only a few weeks ago where an expectation of further cuts was the consensus.
“That swing is causing significant volatility and fixed rate mortgages continue to be priced higher by lenders.
“Those hikes keep on coming as many lenders enter their third or fourth round of product changes in the last two to three weeks.”
Hollingworth said borrowers are increasingly rushing to secure deals before further increases, with the cost of a £200k mortgage on a 2-year fixed rate rising by around £85 per month since the start of the month.
He added: “That has seen a surge in borrowers rushing to lock in a rate before further increases take hold.
“Our figures show that the increase in the average of the best remortgage rates from the ten biggest lenders means that a £200k mortgage on a 2 year fixed rate will cost almost £85p.m. more now than at the beginning of the month.
“With prices at the pump already higher, borrowers will also be nervous about the increase in energy costs expected in coming months.
“Today’s figures are therefore likely be viewed as the calm before the storm by homeowners.”
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