UK households face higher mortgage costs as Bank of England likely raises rates

More than 2.3 million UK households could see a sharp increase in mortgage payments when their fixed-rate deals expire in 2027, as the Bank of England is expected to raise its base rate from 3.75% to 4% on 5 November. The move follows a rise in inflation to 3.5% in September and may be the first of four quarter-point hikes anticipated over the next year, which would add pressure to households already coping with higher energy and food bills.

Data from UK Finance shows that around 700,000 borrowers will need to switch to new rates between July and December, with an additional 2.3 million facing the end of fixed terms in the following year. Although the base rate has not changed since December, volatility in bond markets—driven by energy prices and inflation concerns linked to the war in the Middle East—has pushed up swap rates that influence mortgage pricing.

Mortgage approvals fell to a near three-year low in September, reflecting buyer reluctance amid rising borrowing costs. The Office for Budget Responsibility warned that household disposable incomes are projected to fall by 0.6% next year after accounting for inflation, a downgrade from the 0.6% increase forecast in March. The OBR attributed part of the income squeeze to an energy price shock that could keep consumer inflation at 3.5% this year, well above the 2% forecast made earlier.

Energy costs are also set to rise, with Ofgem’s price cap expected to increase by more than £400 in January, according to EDF forecasts. In the recent budget, Chancellor John Healey announced a £100 payment to 20 million households and measures such as cancelling planned fuel duty rises and extending a VAT cut on electricity bills, funded by tax increases on banks, savers and landlords.

Bank of England Governor Andrew Bailey said the monetary policy committee is monitoring whether higher prices are being passed on to wages, a sign of “second-round effects” that could embed inflation. The central bank had previously expected to cut rates several times this year, but prolonged high oil prices after the closure of the Strait of Hormuz have sustained inflation pressures. Updated forecasts for growth and inflation will be released alongside the upcoming rate decision.

The UK economy grew faster than expected in the first half of 2026, becoming the joint fastest-growing G7 economy, partly driven by AI-related sectors, according to the Office for National Statistics. However, official forecasts for the next year have been sharply reduced amid concerns that higher energy costs could dampen growth.