A Matter of Interest
Rates are rising—but what does that mean for your wallet?
Q: What is expected to happen?
A: The Bank of England is set to lift borrowing costs from 3.75% to 4% at noon on Thursday 5th November, as the Iran war reignites inflation.
It would be the first time they have raised rates in more than three years. Rates are expected to rise to 4% as the Bank attempts to clamp down on rising inflation.
The US and the EU have already been raising rates and the UK has been the notable exception to the global rise.
And there's more...Thursday's expected rise, might not be the last of it. There are growing expectations in the market that there could be 4 more rate rises in the next 12 months. But these are expected to be baby steps up, so the 4 rate rises would take the base rate to 5%, which would be a three-year high.
Q: Why is the Bank likely to raise rates?
The Bank of England's job is to keep CPI inflation at 2%. It raises or lowers interest rates to help achieve that.
Subject to keeping prices stable, it also supports the government’s economic objectives, including growth and employment. Separately, it works to keep the financial system stable and banks safe.
But inflation has been getting out of control.
In some ways they have done a good job, having brought inflation down from a staggering 11% in 2022 - reached at the start of the war in Ukraine. But more recently it has been creeping up again.
Inflation has more than doubled since 2024, from 1.7% to 3.5%
Q: What is the effect on mortgages?
A: There is a £2,040-a-year mortgage shock coming for many.
Nearly 750,000 households paying mortgage interest below 3% were expected to come off fixed deals during 2026, facing an average £170 monthly repayment increase, according to the Bank of England’s July forecast. That works out at £2,040 extra over a full year.
That assessment was made before the expected rate rise, so the cost is likely to be even higher.
Q: Should I quickly get a mortgage before the lenders start raising their prices?
A: Existing fixed-rate payments would remain unchanged until the current deal ends, while tracker mortgages would normally rise in line with any increase in Bank Rate.
Expectations of higher rates are already largely reflected in fixed mortgage pricing.
But...yes, there is something you may be able to do. If your fixed deal is ending, you may be able to book now and switch later. Under the Mortgage Charter, participating lenders let existing borrowers reserve a replacement deal up to six months ahead, although the exact window varies.
That protects you if rates rise. If your lender offers a cheaper equivalent deal before yours starts, you can request it instead.
But check the details before hand.
Also, it usually works for those whose fixed rate period is now ending - leaving a mortgage deal early will usually incur penalty charges and may make the swap unaffordable.
Q: What are the good deals at the moment?
A: The best fixed rate deals are hovering around 5%, but watch out for fees.
When comparing deals - it can be difficult as the headline can be misleading. To make a comparisons you could use: APRC—Annual Percentage Rate of Charge. It includes interest and relevant mortgage fees over the full mortgage term, assuming you keep the deal and move onto the lender’s follow-on rate.
But if you are going to move after the fixed/lock-in period it may be better to compare the 'total cost over the initial deal period' which means just working out what it costs in pounds over the lock in period and compare that.
Compare deals on a number of comparison sites.
Q: Mortgages are not the only game in town - how are people also affected by expectations of a rate rise?
The pound has strengthened, helped by expectations of higher UK interest rates. Higher rates can make sterling investments more attractive, increasing demand for the currency.
On 4 November, the pound reached a seven-week high against the dollar, trading at around $1.35. A weaker dollar also contributed to the move.
For ordinary consumers, a stronger pound means:
Holiday spending money goes further. You get more foreign currency for your pounds, making overseas meals, shopping and accommodation cheaper in sterling terms.
Imports can become cheaper. Businesses pay less in pounds for goods bought in foreign currencies, potentially easing pressure on food, clothing and electronics prices.
Some relief on fuel costs. Oil is priced in dollars, so a stronger pound can soften the impact of rising oil prices—although it won’t necessarily outweigh them.
Q: What about savers - Isn't a rate rise good for them?
Savers stand to gain—but don’t bank on an automatic boost. During the previous rate-rise cycle, there was a lot of criticism that banks appeared less keen to quickly pass on a rate rise to savers than might have been expected.
The practical lesson: check what your account actually pays and shop around.
The issue is that it is a right old pain to keep opening new accounts to chase the latest best rate deal. I therefore quite like the relatively new product of a Cash Savings Platform.
A Cash Savings Platform lets you shop around for better interest rates without the paperwork of opening a new account each time. You register once, transfer your money and choose savings accounts from a range of banks—all managed through one login.
A single platform could have 20 or more banks to choose from and allows you to move
money to another available deal at the touch of a button. It makes you feel a bit like a fancy City Trader, moving money quickly to follow the best deal.
It makes switching easier, but it doesn’t remove fixed-term lock-ins or notice periods. Transfers aren’t necessarily instant, and the platform won’t always offer the best rate across the whole market.
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Please remember everything on this site is journalist commentary and is not financial advice or guidance in anyway. I have taken every care to be as accurate as possible but you should always check things independently before acting on any financial or other decision.
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