What's happening to UK interest rates and what does it mean for mortgages?

Policymakers at the Bank of England are expected to raise UK interest rates for the first time in more than three years at their next meeting.

Most analysts believe the Bank rate will go up from 3.75% to 4%, following holds at the previous six meetings.

Before the US and Israel launched strikes against Iran in February, rates had been expected to fall this year, but the economic fallout from the conflict has pushed up inflation across the globe.

Interest rates affect mortgage, credit card and savings rates for millions of people.

An interest rate tells you how much it costs to borrow money, or the reward for saving it.

The Bank of England's base rate is what it charges other banks and building societies to borrow money, which influences what they charge their own customers for mortgages as well as the interest rate they pay on savings.

The Bank moves its base rate up and down in order to keep UK inflation — the rate at which prices are increasing — at or near 2%.

When inflation is above that target, the Bank typically puts rates up.

The idea is to encourage people to spend less, reducing demand for goods and services and limiting price rises.

The Bank of England's base rate rose to 5.25% in August 2023.

It remained at that level until August 2024, when the Bank started cutting.

Five cuts brought rates down to 4%, before the Bank held rates at its meetings in September and November 2025.

It then cut in December 2025 before holding rates steady in January, March, April, June, July and September 2026.

Meanwhile, the main UK inflation measure, CPI, has fallen significantly since the October 2022 high of 11.1%, which was caused by Russia's full-scale invasion of Ukraine.

However, the rate has been heading back up and is expected to go higher.

It was 3.5% in the year to September 2026, up from 3.1% the previous month and well above the central bank's 2% target.

The Office for National Statistics (ONS), which tracks UK inflation, blamed the acceleration on sharp rises in petrol and diesel prices.

The US-Israel war with Iran has put up energy and fuel costs around the world, which has increased the pace of price rises more generally.

At the start of the year, the Bank had been expected to cut interest rates twice in 2026, with the first drop predicted to come in March or April.

However, the increase in fuel prices and inflation after the outbreak of the conflict has upended all of this.

Oil prices initially rose sharply as a result of disruption to supplies in the region, but dropped back when various ceasefires were agreed.

Oil prices rose again when the US and Iran resumed attacks in the Strait of Hormuz in July.

UK household energy bills rose after the increases in the price cap in July and October, while global oil prices have risen again recently.

Given the uncertainty, many analysts think UK interest rates will rise at the November meeting and again early next year.

What will the energy cap changes mean for my bills?

Just under a third of households have a mortgage, according to the government's English Housing Survey, external.

About 500,000 homeowners have a mortgage that "tracks" the Bank of England's rate.

Any rise in the Bank rate means an increase in the monthly repayments on their outstanding loan.

For a typical loan, the cost would go up by about £31 a month if the Bank raises the base rate by 0.25 percentage points, but it depends on the size of people's loans.

An additional 500,000 homeowners on standard variable rates (SVRs) would wait to see if their lender chose to pass on any Bank rate rise.

Typically, this would mean a £14 increase per month in repayments for a 0.25 percentage points rates rise.

But the vast majority of mortgage customers - some 87% - have fixed-rate deals.

While their monthly payments aren't immediately affected by a rate change, their future deals are.

Most lenders have already priced in a rise in the Bank rate in November, so this is already reflected in the rates being offered.

As of 3 November, the average two-year fixed residential mortgage rate was at 5.97%, while the average five-year rate stood at 5.99%, according to financial information service Moneyfacts.

About 800,000 fixed-rate mortgages with an interest rate of 3% or below are expected to expire every year, on average, until the end of 2027.

Borrowing costs for customers coming off those deals are likely to rise sharply.

You can see how your mortgage may be affected by future interest rate changes by using our calculator:

The information you provided on your monthly payments would not be sufficient to pay off your mortgage within the number of years given.

This calculator does not constitute financial advice.