Bank of England raises rates to 4%
The Bank has raised interest rates by 0.25 percentage points to 4%. Policymakers were unanimous in their decision. Here is the reaction from the industry.
Nathan Emerson, CEO at Propertymark, comments:
“As the Bank of England continues to navigate wider economic pressures, including rising inflation, it comes as little surprise that base rate decisions remain focused on maintaining economic stability.
“While these decisions are never straightforward, the Bank of England must carefully balance the need to control inflation against the wider impact that borrowing costs can have on households.
“Last week’s Autumn Budget acknowledged several important consumer concerns, including rising energy costs and the ongoing challenges facing many first-time buyers. Measures aimed at addressing some of these pressures are focused on stability, particularly where they could help improve access to homeownership and ease the long-term financial burden on households. Over the coming months, much will depend on how inflation and consumer confidence evolve.”
Kevin Shaw, National Sales Managing Director at LRG
“Today’s rise to 4% will come as little surprise. Lenders have largely priced it in already, so the direct effect on mortgage rates should be limited, even if some edge their rates up slightly. The bigger impact is on sentiment, because a rate rise makes the headlines. But it’s a moment in time, not a turning point. We may see one more rise in the early part of 2027, taking rates to 4.25%, but I’d be surprised if they went any higher.
“What the market has now is clarity. The Budget has come and gone without any real curveballs for buyers and sellers, and today’s decision is out of the way. This time last year, the housing market spent much of the final quarter treading water while it waited for the Budget. This year, people know where they stand, and we’re cautiously optimistic about the start of 2027, when we expect the usual seasonal upturn as more buyers return.
“Prices have been correcting for the past two or three years while average wages have risen, so affordability is gradually improving, even if it’s still stretched. Broadly speaking, we expect prices to be flat next year, although that will vary from one local market to the next. The Your First Home scheme should also bring some energy to the market. It’s aimed at new-build homes, but it gets first-time buyers thinking about buying, and once they’re on that journey, they’ll be looking at the wider market too.
“For buyers sitting on the fence, now is a good time to act. Get mortgage advice and start looking now, because there’s every chance of a better deal in the weeks before Christmas than in January or February, when demand picks up.
“For sellers, take the pricing advice of your agent seriously and get market ready now. It’s easy to assume you can call an agent in early January and be on the market the next day, but compliance checks, photography and marketing take around ten days to get in place, so it’s worth starting before Christmas.”
Sarah Thompson, Group Financial Services Director, Mortgage Scout, part of LRG, said:
“Today’s increase is unwelcome for households already facing higher living costs, but it has been widely expected, and mortgage lenders have been pricing it in for some time. We have seen some rates increase and others fall, which shows that mortgage pricing is also influenced by swap rates, competition and lenders managing their own business volumes.
“The outlook remains difficult to predict. Inflation has reached 3.5%, and further energy cost increases are expected in January. The Democrats’ victory in the US midterms could place greater limits on President Trump’s agenda. It may ultimately bring more stability to global markets, but it is far too early to assume this will reduce oil prices or resolve the conflict with Iran.
“In this environment, fixing is not automatically the right answer for every borrower. Some will value the certainty of a fixed rate, while others may benefit from a tracker, an offset mortgage or a product that allows them to move without an early repayment charge. That decision depends on their savings, future plans, capacity to absorb an increase and attitude to risk.
“This is where mortgage advice becomes invaluable. A broker can consider the full range of options and help borrowers choose a mortgage that remains comfortable if circumstances change, rather than making a decision based on fear about what rates might do next.”
Alpa Bhakta, CEO of Butterfield Mortgages Limited, said:
“Today’s increase in Base Rate is largely in line with market expectations and reflects the Bank of England’s continued focus on addressing mounting inflationary pressures. For borrowers and intermediaries within the Prime Central London market, the most important question is what comes next and how will the future rate path evolve.
“The Prime Central London market has historically proven resilient through different interest rate cycles, although higher borrowing costs are naturally encouraging borrowers and investors to take a more considered approach. While the near-term outlook remains dependent on the future path of rates, high-net-worth clients continue to take a long-term view of property investment. As a result, demand remains focused on lending solutions that provide flexibility, certainty and tailored structuring in an increasingly complex market environment.”
Ben Nichols, CEO of RAW Capital Partners, said:
“This was widely expected. Inflation is creeping ever higher, driven largely by energy prices and the conflict in the Middle East, and there is still some volatility in the bond market, so the Bank had to act. But there is no need to blow this base rate hike out of proportion; lenders priced this in many weeks ago, so today’s decision will not necessarily translate into any further upward movement in fixed-term rates.
“More positively, the longer-term economic outlook seems to have improved slightly, and with the Budget having come and gone, there is a little more stability across the property and mortgage markets. This ought to provide greater certainty, allowing borrowers to move ahead with a little more confidence. As lenders, we have to be ready to respond in kind, supporting brokers and borrowers through pragmatism, flexibility and, when necessary, speed.”
Susannah Streeter, Chief Investment Strategist, Wealth Club
‘’Bank of England policymakers are trying to douse the flames of inflation by raising the base rate by 0.25 percentage points to 4%. A hike was widely expected, so it hasn’t set off fireworks on financial markets, but it will give borrowers a shiver as budgets become stretched in the year ahead. Policymakers were unanimous in their plot to raise rates, which may strengthen expectations of further hikes to come.
The cold reality of an era of higher interest rates is hitting home, with three further rate hikes being priced in by financial markets. The conflict in the Middle East has had deep repercussions, and policymakers are anxious about higher energy costs being passed on to consumers and becoming embedded in the economy. So they are trying to dampen down demand by making borrowing more expensive. This is set to act as a drag on spending and investment, make employers more reticent about taking on additional staff, and keep wage growth in check.
Hopes have been swirling this week that the big win by Democrats in the US will mean a further escalation is curtailed, given they look set to have a tighter hold on military spending budgets. However, Brent Crude has been creeping higher again, as uncertainty continues to reign and energy prices still remain around a third higher than before the conflict began. Investors are being reminded that geopolitical risks are still a powder keg that could reignite inflation.
There are still doubts, though, about whether the Bank will opt for three further rate hikes by the end of next year, which are priced into financial markets. Although growth has slightly surprised on the upside this year, and the latest PMI manufacturing snapshot showed a greater uptick in activity than expected, growth is already expected to slow next year. So these forecasts do look overblown, and much will depend on the trajectory of the Middle East conflict.
For borrowers faced with the unpalatable task of remortgaging, it’s still a hot potato of a decision. Some will want the security of a fixed-rate deal to plan household budgets ahead, even though it could mean a significant jump in monthly outgoings.
For savers, a rate hike could see even more attractive deals land in the market, and it’s really worth shopping around. Some easy-access accounts are already paying in the region of 5%, although the very best rates often come with restrictions, with even better offers available if you can stow away your money for a year or more. However, rates may not move significantly higher given that the market has already priced in the likelihood of further hikes.’’
Arjun Kumar, the co-founder and co-CEO of Taxd says:
“A quarter point sounds small. It isn’t, once you look at where it lands.
Take savers. Rates go up, interest goes up, and at some point you cross the Personal Savings Allowance without having made any decision at all. That allowance is £1,000 if you’re a basic-rate taxpayer, £500 if you’re higher rate, and nothing if you’re additional rate. At 4% you only need about £25,000 put away to use up the basic-rate one. Around £12,500 if you’re higher rate. A lot of the people over that line have never filed a tax return in their lives.
It gets tighter from April 2027, when savings income moves onto its own rates of 24%, 44% and 49%. And with thresholds frozen until 2031, there’s no help coming from that direction either. We asked about this in our research and two thirds of over-65s, 67%, said taxing money that’s already been taxed isn’t fair. I understand the frustration. Doesn’t change the bill.
Landlords are the ones I’d worry about today. If you’re on a tracker, your interest went up this afternoon. If you’re coming off a fix, you were already repricing into a worse market. And the tax system isn’t sympathetic to any of it, because mortgage interest isn’t an expense you deduct. You get a tax credit at the basic property rate instead. That’s 20% now, 24% from April 2027. So a higher-rate landlord pays 44% on rental profit and gets relief on the interest at 24%. Costs rise faster than the relief does.
The obvious answer is to put the rent up. But rent is property income, so it gets taxed at 24, 44 or 49 as well. And with thresholds stuck until 2031, plenty of basic-rate landlords will find themselves in the 44% band on what is really the same income they had last year.
None of this is hard once someone explains it. The problem is nobody does. Only 38% of people say they know a lot about income tax, and in our research more than four in ten had already had an overpayment, underpayment or a relief they missed. Today handed them one more thing to get wrong.
If you’ve got savings or rental income, give it twenty minutes this week.”
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