Bank of England Expected to Raise Interest Rates to 4% on Thursday

UK mortgage borrowers and estate agents are bracing for higher housing costs as the Bank of England prepares to raise interest rates from 3.75% to 4% on Thursday, November 5.

Inflation Pressures Force Bank of England Action

Traders in financial markets anticipate the quarter-point increase, which would mark the central bank’s first rate rise since August 2023. Pressure on the Monetary Policy Committee intensified after official figures showed the Consumer Prices Index inflation rate climbed to 3.5% in September, hitting an 11-month high well above the Bank’s 2% target. Conflict in the Middle East has driven a surge in petrol, diesel, gas, and oil prices, adding momentum to broader inflationary forces.

Households are also absorbing higher energy bills after Ofgem’s price cap increased by 3.6% on October 1, with a further 22% jump forecast for January. Suren Thiru, chief economist at the Institute of Chartered Accountants England and Wales (ICAEW), noted that an interest rate rise to 4% looks all but certain as a precautionary measure to contain price pressures. Ellie Henderson, an analyst for Investec, added that many committee members’ patience with the recent rise in inflation has worn thin and warned that producers might struggle to absorb higher energy costs without pushing up shop prices.

Mortgage Costs Mount for UK Homeowners

The anticipated rate rise threatens to squeeze homeowners as fixed-rate deals roll off. Financial information service Moneyfacts reported that the average two-year fixed residential mortgage rate stood at 5.96%, while the average five-year rate reached 5.99% as of November 4. Broker L&C calculated that average mortgage rates offered by the 10 biggest lenders mean borrowers rolling off a five-year deal face paying almost £5,000 more each year in repayments on a £200,000 mortgage over 25 years compared to those who secured remortgage terms in 2021, when the average five-year fixed rate among those lenders was 1.30%.

Market volatility has left little room for delay. Financial analysis shows swap rates rising significantly since the start of the year, pushing typical two-year and five-year fixed rates higher and adding roughly £170 a month to new refinancing bills. Savers, on the flipside, could see the interest rates offered to them improve in light of any rise in the Bank rate.

Housing Market Recovery Faces Headwinds

For estate agents, rising borrowing costs arrive as buyer affordability already restricts demand. HMRC figures show seasonally adjusted residential transactions fell to 94,800 in September, representing a 4% decline compared with September 2025. Portal Zoopla reported that higher mortgage rates have reduced buying power by 15% for mortgage-dependent purchasers, projecting 100,000 fewer housing transactions in 2026 than in the previous year.

Despite the cooling property market, broader economic resilience may keep further tightening on the agenda. UK economic output grew unexpectedly by 0.1% in August, while the unemployment rate fell to 4.7% in the three months to August. Economists at Deutsche Bank expect Governor Andrew Bailey to support a 6-3 vote in favour of higher borrowing costs, framing the decision as an insurance policy on potential second-round effects.

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