Tembo Market Watch: July 2026

Key takeaways

• Bank of England holds base rate at 3.75%: Rates stay unchanged for the fifth meeting running, but Middle East conflict has reignited inflation fears.
• Hikes forecast for autumn: Futures markets now expect the Bank of England could raise interest rates up to three times before the end of 2026, starting as soon as September.
• Mortgage rates climbing: Swap rates are rising, prompting major lenders to push fixed mortgage rates back up.
• Inflation cools slightly to 2.6%: June CPI figures showed a welcome dip down from 2.8% in May thanks to cheaper fuel and food, but sticky underlying price pressures mean rate cuts remain off the table.
• Andy Burnham takes the reins: The new Labour leader brings a renewed focus on regional housing development, planning reform, and support for buyers.

Bank of England holds at 3.75%, but for how long?

In a widely expected move, the Bank of England voted to hold the base rate at 3.75% today.

The decision comes shortly after the latest inflation figures for June showed headline CPI cooled to 2.6% (down from 2.8% in May), largely thanks to easing food and fuel prices. While lower inflation is good news for your wallet, underlying core inflation remains stubborn. Plus, escalating conflict in the Middle East is pushing global oil and shipping costs higher, creating a fresh wave of inflationary risk.

Where markets were previously hoping for gradual base rate cuts in late 2026, sentiment has completely reversed. Experts are now predicting up to three 0.25% rate increases before December 2026, which could see the year end with the base rate at around 4.50%.

Mortgage rates are on the rise

While mortgage rates had been falling earlier in the summer as a ceasefire between the US and Iran appeared to hold, fresh strikes and attacks on oil tankers in the Red Sea have reignited global energy supply fears and driven up borrowing costs. From mid-July, the UK's five biggest high street banks (HSBC, Barclays, Lloyds, NatWest and Nationwide) led a wave of rate increases on new fixed deals. The run up to the Bank of England's decision this week also triggered a second wave of rate hikes with major lenders including Halifax, Santander, and TSB pulling deals and increasing rates again.

As of 30th July 2026, the average mortgage rate sits at 5.59% according to Moneyfacts, up from 5.47% at the start of July (although still below the Iran war peak of 5.9% seen in April). Average two-year fixed rates sit at 5.62%, while the average five-year fixed deal now stands at 5.66%.

For existing homeowners, the potential impact is significant. Recent projections from the Bank of England suggest over 5 million homeowners should expect their monthly mortgage repayments to increase by the end of 2028. That's up from 4 million projected in December, driven largely by the ongoing economic impact of the Iran war.

However, it's not all bad news. The Bank's Financial Stability Report notes that while bills will rise, the jump will not be as severe as seen in recent years. A typical owner-occupier rolling off a fixed rate in the next two years faces an estimated monthly increase of £45, compared to average rises of £120 between late 2022 and 2024.

Unfortunately, the hardest impact will hit the 750,000 homeowners currently on legacy fixed deals paying under 3% interest who expire this year. These buyers face an average increase of £170 per month in repayments. With more than 8 in 10 mortgage customers on fixed-rate deals, waiting for rates to drop further carries real risk as lenders reprice quickly. Securing an agreement early gives you an essential shield against sudden rate increases.

Andy Burnham and the housing market

Political momentum has shifted with Andy Burnham taking over as Prime Minister and leader of the Labour Party on 20th July 2026. Burnham’s agenda places housing squarely at the top of national priorities, combining rapid housing delivery with regional devolution and targeted support for buyers.

While major structural reforms take time to impact property values, early policy signals point to several key changes for the housing market:

• The biggest council housebuilding push in decades: Burnham has pledged to unlocking unused public land to spearhead the largest social and council housebuilding programme since the post-war era. Diverting resources into affordable housing aims to take the heat out of the private rental market over the long run.
• Planning overhauls & regional development: Building on Labour's target of 1.5 million new homes, expect a streamlined planning process and an emphasis on regional hubs across the North and Midlands (such as Greater Manchester, Leeds, and Newcastle). This will unblock stalled new-build developments, giving buyers greater choice in new supply.
• Tackling homelessness & rental security: In his first Downing Street speech, Burnham pledged £340m to tackle rough sleeping while pushing forward with private rented sector reforms. Stronger protections for renters aim to give ‘Generation Rent’ greater stability while they build their deposits.
• Property tax changes: Despite speculation surrounding a major overhaul of property taxes, Burnham has ruled out scrapping council tax or stamp duty in the short term, giving buyers and movers certainty on purchase costs for the upcoming Autumn Budget.

The Tembo take: Real housing reform takes time, but more homes, streamlined planning, and dedicated backing for buyers mean the future is looking much brighter for anyone trying to get on or up the ladder.

Inflation update: what a cooling CPI means for your wallet

June's inflation figures offered a quick breather for household budgets. The headline Consumer Prices Index (CPI) dropped to 2.6%, down from 2.8% in May. That slowdown was mainly driven by cheaper fill-ups at the petrol pump and food inflation easing to 1.7%.

However, beneath the headline figure, inflation acts as a double-edged sword. While the cost of physical goods and energy cooled off, services inflation (which includes things like wages, domestic transport, and hospitality) remains high at 3.6%. Because services make up such a huge portion of the UK economy, this stubborn underlying pressure makes the Bank of England very cautious about lowering interest rates.

Meanwhile, wholesale energy markets remain volatile due to ongoing conflict in the Middle East. Economists warn that June’s inflation dip could prove temporary if global oil prices rise again, which is precisely why financial markets are pricing in rate hikes rather than rate cuts before the year ends.

For savers, staying on top of your interest rate remains key. A 2.6% inflation rate sounds low, but if your savings are sitting in a standard bank account earning under 2%, your money is losing purchasing power every single day. To grow your money in real terms, your cash needs to earn a return that beats headline inflation.

What does July’s Market Watch mean for savers?

Saving in the short-term

Variable savings rates remain strong following today's hold. However, with inflation risks lingering over the autumn, keeping your cash in low-yielding accounts could mean losing money in real terms.

Saving in the long-term

With rate hikes on the horizon, providers may begin nudging fixed-rate ISA offers upward over the coming months. If you have cash sitting idle, now’s a great time to lock in with a good savings rate. Check out our Fixed Rate ISA here.

Saving for milestones

If you are saving for a deposit, maximising government bonuses and top-tier interest is critical. Our HomeSaver™ account offers up to 5.55% AER (combining a 4.55% variable rate with a 1.0% fixed bonus when you complete your mortgage through Tembo). Combine that with our Cash Lifetime ISA to get up to £1,000 in free government bonus money every tax year.

What does July’s Market Watch mean for mortgages?

First-time buyers

Fixed-rate mortgages have already begun moving upward as lenders price in anticipated Bank of England hikes. If you are currently house hunting, delaying your application could mean paying significantly more per month.

Your action: Check your affordability now

Higher stress-tested interest rates mean borrowing capacity could tighten heading into autumn. Checking out your options by speaking to a mortgage expert is a great way to get an understanding of your affordability - you might be able to secure a deal earlier than you think!

Home movers

House price growth remains sluggish, giving buyers some negotiating power on seller asking prices. However, higher mortgage rates mean your overall monthly repayments on a larger property could jump.

Your action: Explore porting your mortgage

If you're moving home, check if your current deal is portable. Depending on your situation, options like an Income Boost (adding a family member's income to your application), a Deposit Boost (gifting deposit unlocked from a loved one's home equity), or Deposit Unlock (for new builds) could help bridge the gap between what you have saved and what you can borrow.

Remortgagers

If your fixed deal ends within the next 6 to 12 months, waiting until the last minute is a risky strategy. Rolling onto your lender's Standard Variable Rate (SVR), which currently averages at 7.13%, will cause a sharp spike in monthly payments.

Your action: Lock in early

In the run-up to your remortgage, most lenders allow you to secure a new rate up to 6 months in advance without committing immediately, giving you a safety net against rising rates. Plus, with our free RateCheck Service, if rates drop before you complete, your dedicated Tembo advisor will automatically reapply for the cheaper deal at no extra cost.

The bottom line...

While the Bank of England's decision to hold the base rate at 3.75% offers brief stability, the economic tide is turning toward potential rate hikes later this year. With mortgage rates creeping up and energy pressures lingering, proactive financial planning is your best asset.

Whether you are building a deposit, searching for your first home, or securing a new remortgage deal, taking action today puts you in the strongest position for whatever comes next.

Full terms and conditions of our rate checking service can be found here.