UK mortgage market update August 21 2026: inflation rises to 2.9%, but rates keep falling
UK inflation rose to 2.9% in July, up from 2.6% in June, the Office for National Statistics confirmed on Wednesday 19 August. It sounds like the kind of number that should push mortgage rates up. It didn’t. Because the rise had been fully expected, swap rates barely moved, and lenders including Nationwide, Santander, HSBC and Gen H all continued cutting fixed rates through the week regardless.
Here’s why an inflation rise didn’t move your mortgage rate, and what actually did.
This week at a glance
| UK inflation rose to 2.9% in July, up from June's 15-month low of 2.6%, exactly matching what economists had forecast | |
| The inflation rise did not move mortgage rates. Because it was fully expected, swap rates held steady, and lenders kept cutting anyway | |
| Nationwide, Santander, HSBC and Gen H all trimmed fixed rates this week, taking the average two-year fix down to 5.61%, the first weekly fall in over a month | |
| Rightmove recorded its largest August asking price drop since 2018, down 2.0% month on month, with buyer demand still up 5% since the change of Prime Minister | |
| Mortgage arrears fell for an eighth consecutive quarter, and possessions fell year on year for the first time since 2023 (UK Finance) | |
| The next real test is 17 September, the next Bank of England base rate decision, with markets still expecting a hold |
Why inflation rose but your mortgage rate didn’t
This is the story of the week, and it’s worth understanding properly because it comes up constantly.
Inflation rose to 2.9% in July, driven almost entirely by energy costs following the 13% increase in the Ofgem price cap from 1 July. Gas prices alone rose nearly 15% year on year, the biggest jump since October 2022. Underneath that, the picture was more mixed: core inflation, which strips out energy and food, held steady at 2.6%, services inflation (the figure the Bank of England watches most closely) actually eased slightly to 3.4%, and transport and food inflation both slowed.
UK inflation breakdown, July 2026
Headline CPI
2.9%
Up from 2.6% in June
Core CPI (ex energy, food)
2.6%
Unchanged for a 3rd month
Services inflation
3.4%
Eased from 3.6%
CPIH
3.1%
Up from 2.8%
RPI
3.2%
Up from 3.0%
Gas prices, annual
+14.7%
Biggest jump since Oct 2022
Source: Office for National Statistics, 19 August 2026.
Here’s the key point. Fixed mortgage rates are priced off swap rates, which reflect where markets expect interest rates to go, not where inflation sits today. Because this 2.9% figure was exactly what markets had already priced in, swap rates and gilt yields barely moved on the day, and the ten-year gilt yield actually eased slightly. An in-line inflation print, however dramatic the headline number looks, doesn’t move mortgage pricing on its own. That’s the distinction worth remembering the next time an inflation headline feels alarming.
Lenders kept cutting anyway
Lenders cutting rates this week
| Lender | Change | Effective |
|---|---|---|
| Nationwide | Cut fixed rates by up to 0.15% across 2, 3 and 5-year products. Lowest rate now 4.48% (2-year, 60% LTV, home mover) | 18 August |
| Santander | Cut BTL and residential product transfer rates, residential down up to 0.13%, all BTL down 0.10% | 17 August |
| HSBC | Reduced fixed rates during the week, confirmed by broker commentary | This week |
| Gen H | Also reduced fixed rates during the week | This week |
Industry commentary this week was consistent on why this happened. The cuts reflect lenders competing for business, particularly the large pipeline of remortgage activity building through the rest of 2026, not any judgement that inflation is under control. As one broker put it, lenders don’t price fixed deals against today’s inflation rate, they price them against where they expect rates to go next, which is exactly why this week’s cuts continued regardless of the CPI print.
Average mortgage rates this week
Average mortgage rates this week
| Product | This week | Last week | |
|---|---|---|---|
| Two-year fixed | 5.61% | 5.63% | |
| Five-year fixed | 5.64% | 5.67% | |
| Standard Variable Rate | ~7.13% | 7.13% | |
| Bank of England base rate | 3.75% | 3.75% |
Moneyfacts described this as the first week-on-week fall in average rates in more than a month, though cautioned it shouldn’t be taken for granted. The two-year average remains around 9 basis points higher than at the start of July.
The best rates available by deposit size
Best-buy rates by deposit size
| LTV | Best 2-year fixed | Best 5-year fixed | Best 2-year tracker |
|---|---|---|---|
| 60% | 4.32% (Danske) | 4.46% (Halifax) | 3.99% (Barclays) |
| 75% | 4.66% (L&C) | 4.75% (L&C) | 4.17% (L&C) |
| 85% | No clean best-buy this week | 4.73% (Santander) | n/a |
| 90% | 4.74% (Santander / West Brom) | 4.81% (Virgin Money) | 4.63% (L&C) |
| 95% | 4.97% (Leeds BS) | 5.24% (Leeds / HSBC / Nationwide) | 4.89% (L&C) |
Worth noting: a genuinely competitive two-year tracker is available below 4% for borrowers with a larger deposit, useful for anyone who thinks rates may ease further later in the year and is comfortable with some movement in their payments.
The wider risk: oil, not inflation
If inflation didn’t move rates this week, what could? The honest answer is oil. The unresolved standoff over the Strait of Hormuz kept pushing energy prices up through the week, with Brent crude rising more than 4% to around $92 to $93 a barrel by 20 August. Persistently high oil prices feed directly into future inflation expectations, which is exactly the channel that could push swap rates, and therefore fixed mortgage rates, higher again. This remains the single biggest risk to the current run of cuts continuing.
Working in the other direction, the labour market continues to soften. Payrolled employment fell by 86,000 over the year to the second quarter, and annual pay growth eased to 3.5% excluding bonuses. A cooling jobs market gives the Bank of England more room to hold rates, or even ease, rather than raise them.
House prices: the sharpest August drop since 2018
Rightmove’s index, released 17 August, showed average asking prices for newly listed homes falling 2.0% month on month, the largest August drop since 2018, and now 1.0% below where they stood a year ago, the biggest annual fall since December 2023. Rightmove pointed to sellers pricing more realistically from the outset as competition for buyers increases. There was a genuinely encouraging detail alongside it: buyer demand was up 5% since 20 July, when Andy Burnham became Prime Minister, suggesting the political clarity of recent weeks may be helping confidence even as prices soften.
Separately, ONS data confirmed annual house price growth slowing for a second month to 2.0%, with Zoopla’s own index showing a similar picture at around 1.3 to 1.4%.
Government and regulatory update
Prime Minister Andy Burnham has confirmed stamp duty will not change in the Autumn Budget, and has ruled out replacing council tax and stamp duty with a single property tax at this stage. Housing Secretary Angela Rayner has separately ruled out rent controls for England. Both confirm the positions first signalled at the end of July, removing two sources of uncertainty heading into the Budget, though a possible reform targeting higher-value homes remains a watch item for October.
The FCA’s mortgage rule review consultation, which closed 28 July, saw no new developments this week. A policy statement is still expected in the second half of 2026.
Arrears & possessions, Q2 2026
Homeowner mortgages in arrears
77,940
Down 1% on the quarter, 8th consecutive fall
Homeowner possessions
1,150
Down 8% on the quarter, 14% on the year
Source: UK Finance, released 13 August 2026, covering Q2 2026.
UK Finance’s James Tatch noted that possessions are now down year on year for the first time since late 2023, and remain well below the long-term historic average. More than two-thirds of possessions relate to mortgages arranged at least a decade ago, a reminder that the current market’s stress points sit mostly with older lending, not recent borrowers.
What to watch next week
What to watch next week
| Thursday 17 September, the next Bank of England base rate decision, with markets still expecting a hold at 3.75% | |
| Tuesday 16 September, August's inflation figure, the last major data point before that decision | |
| Ongoing, oil prices and the Strait of Hormuz standoff, the single biggest risk to the current run of rate cuts continuing | |
| Ongoing, the next Ofgem price cap announcement, which will shape where inflation heads into the autumn |
What this means for you
If you’re within six months of remortgaging or completing a purchase, the message this week hasn’t changed: secure a rate now rather than waiting for the September decision. Lenders reprice ahead of Bank of England announcements, not after them, so the best deals tend to appear and disappear before the meeting, not because of it. Most lenders let you reserve a rate up to six months out and switch if pricing improves before you complete.
If you’re comfortable with some payment movement, a two-year tracker below 4% is genuinely available for well-capitalised borrowers at lower loan-to-values, worth considering if you think rates may ease further later in the year.
If inflation headlines have been worrying you, this week is a useful example of why the headline number isn’t the whole story. What actually moves your mortgage rate is whether inflation surprises markets, not whether it rises at all.
Frequently asked questions this week
Why didn't mortgage rates rise when inflation went up in July?
Because the rise to 2.9% was exactly what markets had already expected. Fixed mortgage rates are priced off swap rates, which reflect future expectations, not current inflation. Since there was no surprise, swap rates barely moved, and lenders continued cutting rates for competitive reasons regardless.
What is UK inflation right now?
UK CPI inflation was 2.9% in July 2026, up from 2.6% in June, according to the ONS. Core inflation, which excludes energy and food, held at 2.6%, while services inflation eased slightly to 3.4%.
Why is inflation rising if energy prices are supposed to be easing?
The July rise was driven by the Ofgem energy price cap increasing by 13% from 1 July, which pushed gas prices up nearly 15% year on year. This was a known, anticipated change, which is why it didn't surprise markets or move mortgage pricing.
Is now a good time to secure a mortgage rate?
If your deal ends within the next six months, yes, it's generally sensible to reserve a rate now. Lenders tend to reprice ahead of Bank of England decisions rather than after them, and most let you switch to a cheaper deal if pricing improves before you complete.
This article is for information only and does not constitute financial advice. Rates quoted are accurate as at the dates stated and are subject to change or withdrawal without notice. Sources: Bank of England, Office for National Statistics, Moneyfacts, Nationwide, Financial Conduct Authority, and UK mortgage trade press published 27 to 31 July 2026.
Reviewed by Brennan Goodwin, CeMAP-qualified mortgage adviser at Heron Financial. Last updated: 21 st August 2026.