More than 2.3 million UK households are set to see their mortgage payments rise sharply when they come off fixed-rate deals in 2027, as the Bank of England prepares to raise interest rates again. The Bank's nine-member monetary policy committee is widely expected to lift the base rate from 3.75% to 4% on 5 November, following an increase in UK inflation to 3.5% in September.
According to financial market expectations, that could be the first of four quarter-point increases over the next 12 months — a path that would add to the pressure on households already dealing with higher energy and food bills. The base rate has not changed since December last year, but volatility in bond markets, driven in part by energy prices and inflation fears connected to the war in the Middle East, has pushed up the swap rates used to price fixed-rate mortgages. A rise in the central rate could lift those costs further.
Figures collected by the banking industry body UK Finance show a further 2.3 million households will reach the end of their fixed rates next year. Thousands more borrowers are due to move onto new rates in the final months of this year, with 700,000 forecast to switch between July and December.
The squeeze is already visible in the housing market. Mortgage approvals fell to a near three-year low in September as prospective buyers were put off by higher borrowing costs.
Alongside last week's budget, the Office for Budget Responsibility warned that household disposable incomes would fall by 0.6% next year once inflation is taken into account — a downgrade from the 0.6% increase it had forecast in March. The OBR's David Miles described the outlook as "a pretty grim picture". The watchdog said the energy price shock would push consumer inflation to 3.5% this year, well above its March forecast of 2%. EDF's latest forecast suggests Ofgem's price cap, which sets household energy bills, will rise by more than £400 in January.
Chancellor John Healey made a £100 payment to 20 million households the centrepiece of his budget, saying he wanted to ease pressure during the coldest months and carry people through to spring. The cost of living package also cancelled fuel duty rises planned by Rachel Reeves and extended a VAT cut on electricity bills, funded through tax rises on banks, savers and landlords.
Since the start of the Iran war the Bank of England has held a wait-and-see approach on inflation, unlike the US Federal Reserve, Bank of Japan and European Central Bank, which have already raised borrowing costs this year. Governor Andrew Bailey has said the committee is watching closely for signs that higher prices are feeding into wages — the "second-round effects" that can embed inflation. Before the conflict, the Bank had been expected to cut rates several times this year, but prolonged high oil prices, affected by the closure of the strait of Hormuz, have instead fed rising inflation.
Updated growth and inflation forecasts will be published alongside this week's decision. The UK economy grew faster than expected in the first half of 2026, matching the fastest pace in the G7, partly thanks to AI-related sectors, according to the Office for National Statistics. However, official forecasts for next year have been cut sharply over concerns that higher energy costs will weigh on growth. While money market pricing points to four rate rises by next July, many City economists consider two increases more likely.
Sources: The Guardian Business.