UK households face higher mortgage bills as interest rate rise approaches

More than 2.3 million UK households are approaching the end of fixed-rate mortgage deals in 2027 and face sharply higher repayments, with the Bank of England expected to raise interest rates this week. The prospect of more expensive borrowing adds to the strain from rising food and energy costs.

The Bank’s nine-member monetary policy committee is widely expected to lift its base rate from 3.75% to 4% on 5 November, following a further rise in inflation to 3.5% in September. Financial markets anticipate four quarter-point increases over the next 12 months, with money market pricing pointing to four rises by next July. Many City economists, however, expect only two increases.

Figures gathered by banking industry body UK Finance show that 2.3 million households will finish their fixed-rate deals next year. Borrowers are already making that transition: 700,000 had been forecast to move to new rates between July and December this year, with thousands of contracts ending in the final months of 2026.

Although the base rate has remained unchanged since December last year, fixed-rate mortgage pricing has already come under pressure. Bond market turbulence, partly linked to energy prices and inflation concerns arising from the Middle East war, has lifted the swap rates used to price those loans. A base rate increase could push borrowing costs higher still. Figures published last week showed mortgage approvals fell in September to their lowest level in almost three years as higher costs discouraged prospective buyers.

The wider outlook for household finances has also deteriorated. Alongside last week’s budget, the Office for Budget Responsibility forecast that disposable incomes would shrink by 0.6% next year after inflation, reversing its March prediction of a 0.6% increase. The watchdog’s David Miles called the outlook “a pretty grim picture”. The OBR now expects consumer inflation of 3.5% this year, compared with its March forecast of 2%, as the energy price shock feeds through.

EDF’s latest forecast suggests Ofgem’s household energy price cap will rise by more than £400 in January. Chancellor John Healey put a £100 payment to 20 million households at the centre of his budget. His cost of living measures also cancelled fuel duty increases planned by Rachel Reeves and extended a VAT reduction on electricity bills, funded through higher taxes on banks, savers and landlords.

Since the Iran war began, the Bank has held back from responding to higher inflation with rate increases. The US Federal Reserve, Bank of Japan and European Central Bank have already raised borrowing costs this year. Governor Andrew Bailey has indicated that policymakers are closely monitoring whether price rises translate into higher wages, a development that could make inflation more persistent.

Before the Middle East conflict, expectations had been for several UK rate cuts this year as inflation moved towards the Bank’s 2% target. Instead, the closure of the strait of Hormuz has restricted oil supplies, helping sustain historically high prices and adding to inflationary pressure.

Updated Bank forecasts for growth and inflation will accompany this week’s decision. The UK exceeded expectations to share the fastest growth rate among G7 economies in the first half of 2026, partly supported by AI-related sectors, according to the Office for National Statistics. Official forecasts for next year have nevertheless been reduced sharply amid concerns that expensive energy will increasingly constrain growth.