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What’s happening to UK interest rates and what does it mean for mortgages?
The Bank of England is widely expected to raise its base rate from 3.75% to 4% at its next meeting, which would be the first increase in more than three years. Higher inflation, driven partly by rising fuel and energy costs following conflict involving the US, Israel and Iran, has reversed expectations that rates would fall in 2026.
The Bank uses interest rates to help keep inflation near its 2% target; UK CPI inflation reached 3.5% in September 2026, up from 3.1% the month before. About 500,000 homeowners have mortgages that track the base rate, and a 0.25 percentage point rise could add roughly £31 a month to a typical repayment; another 500,000 on standard variable rates could see about £14 added if lenders pass it on. Most borrowers, around 87%, have fixed-rate deals, so their current payments would not change immediately, though future deals may cost more.
In short
- The Bank is expected to raise rates from 3.75% to 4%.
- Rising fuel costs have pushed inflation up to 3.5%.
- Tracker mortgage payments could rise by about £31 a month.
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The case for
Raising rates could help bring inflation back towards the Bank’s 2% target by curbing demand and signalling a firm response to rising prices. Supporters may argue that acting now can prevent inflation from becoming more persistent, which would otherwise erode household incomes and make it harder to plan. A modest increase may be preferable to allowing inflation to stay high and needing sharper rises later.
The case against
Higher rates would increase payments for borrowers on tracker and some variable-rate mortgages, while potentially making future fixed deals more expensive. Critics may argue that fuel and energy costs driven by overseas conflict are not caused by strong UK demand, so rate rises may do little to address the source of this inflation. They could instead add pressure to households and businesses already facing higher costs, with limited immediate effect on most fixed-rate borrowers.
Explained simply
The Bank of England sets the base rate, which affects the cost of borrowing and helps it steer inflation towards its 2% target. When prices rise faster than that, the Bank may raise rates to reduce spending and price pressures, although changes can take time to affect the wider economy.
Mortgage borrowers are affected in different ways. Payments on tracker mortgages move with the base rate, while lenders decide whether to change standard variable rates; people on fixed-rate deals keep the same payments until their deal ends.
The rate matters beyond mortgages because it can influence borrowing costs for households and businesses, as well as savings returns. A rise may make new or renewed mortgages more expensive, while also helping the Bank try to bring inflation down.