How inflation is shifting mortgage strategies for homeowners

Inflation has been front-page news in the UK over the last few years, with the cost-of-living crisis pushing the inflation rate to extremely high levels, making life unaffordable for many.

The highest inflation rate in recent memory was 11.1% in October 2022. It has since reduced to 3.4%.

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Definition: Inflation is the gradual increase in the price of goods and services over time. When inflation rises, your money does not go as far as it used to. For example, a £10 item today may cost £11 next year, even though it is the same product. Inflation doesn’t affect prices directly; it just affects how quickly or slowly prices rise.

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This affects everyone’s living standards and trickles down to how people live their day-to-day lives and spend. The biggest financial decision you can make in your life is a mortgage, so it makes sense that the way people buy homes and select mortgage products changes with the rise and fall of inflation.

Here are some examples of trends that emerge as inflation rises.

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Fixed rate for longer

When inflation rises and there are conversations about how working people are managing, homebuyers and owners often look to lock in a rate for longer, so they know they can afford the monthly payment and it won't change.

This causes a knock-on effect on the housing market: if people secure a fixed rate for a set number of years, many put off moving home. This means the property market can suffer due to a lack of housing supply.

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Larger Deposits

As spending habits change with inflation, many homeowners looking for a new home or first-time buyers build a deposit over time with a view of having a lower loan-to-value ratio, and therefore achieving more attractive mortgage rates. Although this makes sense, it also means that the mortgage market dwindles when people are saving up more money over a longer period of time.

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This can mean difficult situations for people who already have their home for sale, and they need to consider potential price reductions in order to sell their homes, potentially undervaluing their property in the process.

These are the situations this creates for different kinds of home buyers.

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What this means for different kinds of homeowners

New buyer seeking a mortgage now.Expect higher monthly payments, ensure a sufficiently large deposit to reduce LTV and improve chances of acceptance.Homeowner nearing the end of the fixed-rate term.Locking in a new fixed rate may be more expensive; consider affordability carefully, or extend the mortgage term to reduce monthly payments.Existing homeowner on a low fixed rateLikely to stay put, moving or selling could be costly due to the “lock-in” effect. Potential to downsize due to homeownership costs.Someone wanting to move or upgradeMany are delaying until inflation/interest rates ease, or they have substantial savings or disposable income to absorb higher costs.Anyone budgeting household finances.Must allow for not just mortgage costs but increased utility, maintenance and bills, more conservative budgeting needed

Conclusion

Inflation continues to influence how homeowners and buyers approach the property market. From choosing longer fixed-rate deals to saving larger deposits, people are adapting their strategies to protect their finances and plan more cautiously for the future. While these shifts can slow the market as a whole, they also underscore the importance of individuals making informed, confident decisions about their mortgage options. Understanding how inflation affects borrowing and affordability puts buyers and homeowners in a much stronger position when navigating a changing economic landscape.

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Ready to take your next step?

If you are planning to buy, remortgage or move, a Hello Mortgage adviser can offer clear, personalised guidance to help you make the right choice with confidence.

Tel: 0800 292 2557

Email: hello@hellomortgage.co.uk

Please note your home may be repossessed if you do not keep up repayments on your mortgage.