The Bank of England increased the Bank Rate from 3.75% to 4.00% last week as part of its response to inflationary pressures. This interest rate rise could affect mortgage repayments, savings returns and household budgets.
Broader global economic developments, including geopolitical tensions in the Middle East, have also contributed to uncertainty in inflation and energy markets.
Why has the Bank of England increased interest rates?
This increase came despite some potentially positive developments in financial markets. Oil prices fell following the US midterm elections, amid investor optimism that tensions in the Middle East could ease. Equity markets also reacted positively, with share prices rising in both the UK and the US.
The Bank’s decision to increase the Bank Rate reflects its assessment of the inflation outlook and the risk that persistent inflation could become embedded in the economy, including through higher wage growth and increased business costs.
The Consumer Prices Index (CPI) was 3.5% in the 12 months to September 2026, up from 3.1% in August 2026. While this remains well below the peak levels of over 10% experienced during the inflationary period of 2022-2023, it is still significantly above the Bank of England’s 2% inflation target.
Regardless of the factors driving the decision, this represents the first increase in interest rates for three years. The question for many households and businesses is what impact this may have on their finances.
What the interest rate rise could cost you
A 0.25% increase does not sound too dramatic and still leaves a bank rate that is still lower than historic averages, which according to the Bank of England’s official Bank Rate history, are around 9% over the last 50 years.
But it is painful for those whose mortgage was arranged, with a Bank Rate that stood at just 0.1% back in December 2021, especially if they are now coming to the end of a fixed-rate mortgage deal.
Tracker Mortgages
The first to feel the impact will be more than half a million mortgage borrowers with a tracker rate mortgage. The average borrower will be paying around £30.75 per month extra.
Standard Variable Rate Mortgages
Those on Standard Variable Rate mortgages may also see their payments increase. However, there is no automatic link between a lender’s Standard Variable Rate and Bank Rate, meaning any changes will be at the discretion of the individual lender.
Fixed-Rate Mortgages
Those on fixed deals, where the interest rate stays the same for a set period usually as an introduction to the deal will see no immediate increase – but will have to be prepared for a significant increase in repayments if their deal is close to ending.
The simple answer is that, unless you have recently arranged a fixed rate deal, the rate increase will mean you will pay more to buy your home.
How higher interest rates can affect the housing market
An interest rate rise can influence buyer confidence and affordability, particularly for those relying on mortgage borrowing.
The housing market is reported as being slow, with many people feeling financially strained, and perhaps waiting for the rate decreases predicted earlier this year. The fact that the rate has instead been hiked may dent such optimism as there is.
But the ongoing shortage of housing, and an economic outlook that is by some measures actually looking more positive than a few months ago could mean that a house price collapse may be unlikely.
Are higher interest rates good news for savers?
While an interest rate rise can increase borrowing costs, it may also create opportunities for savers looking for better returns.
An increase in the rates offered on savings accounts may be on the way, although banks and building societies tend to make increasing rates on lending a priority. Any increase for savers could take weeks or months to come through.
A rate increase could have a positive effect on gilts, and therefore on annuities, but it is likely that the rate increase will have already been priced in.
What steps should you consider?
An increase in interest rates can affect your mortgage repayments and wider financial arrangements. If you’re concerned about rising costs, speaking to a Financial Adviser could help you understand your options.
Depending on your circumstances, this could include remortgaging, switching to a more competitive deal or extending your mortgage term to reduce monthly payments. However, extending the term is likely to increase the total interest paid over the life of your mortgage.
At Continuum, we have access to a wide range of mortgage products across the lending market, including deals that are not generally advertised.
Our advisers can help you review the options available and recommend a solution based on your individual circumstances and objectives.
Get in touch today to find out how we could help.
Consumer price inflation, UK: September 2026 – Download PDF
UK Finance mortgages data update – November 2026
This article is intended for general guidance only and is based on the opinion of Continuum it does not constitute financial advice. Individual circumstances vary, and you should consider seeking advice from a regulated financial adviser before making any decisions about your mortgage planning.
Your home may be repossessed if you do not keep up repayments on your mortgage.
What does this mean for your money?
Economic changes affect everyone differently depending on their financial situation. Find out how Continuum can help you make sense of what it means for you.
See how we can help
