Last September, the UK base rate was 4%, having already been cut three times in 2025 before a final cut a few weeks later in December to 3.75%. And it’s sat there ever since.
Before the Middle East conflict began in February, it was hoped that further rate cuts would be made this year, providing a stimulus for the housing market after an extended period of high interest and mortgage rates. Now, as we look towards the next few weeks, the talk is on whether interest rates will rise rather than fall.
The next meeting of the Bank of England’s Monetary Policy Committee is on 17 September. The general consensus seems to be that September will see the rate held once more at 3.75%. But the margin of decision-making could be slim and a rate rise isn’t out of the question.
Nervousness is increasing
At July’s meeting of the MPC, three of the nine-strong committee voted to increase the bank rate by 0.25% to 4%. That was up from one in April’s meeting and two in June’s, suggesting that MPC members are growing increasingly nervous. Inflation hit 2.9% in July and August’s figure – to be released on 16 September – will likely include the extended impact of higher energy costs as a result of the Middle East crisis, as well as higher food costs as a result of the summer heatwaves disrupting food production.
If an interest rate rise does materialise, either at the September meeting or at the following one on 5 November, the impact will be wide-ranging.
Mortgage rates would rise, impacting affordability
Tracker and variable rate mortgages follow the path of the base rate, so if the base rate goes up so will such mortgages. Fixed-rate mortgages may also rise if the market senses uncertainty.
This puts pressure on affordability. Buyers can borrow less and so their housebuying budget won’t go quite as far as before, affecting what they can buy. Meanwhile, those needing to remortgage may decide to fix sooner if further rate rises look likely.
Demand could fall causing downward pressure on prices
Higher mortgage rates, more limited budgets and general nervousness could cause some potential buyers to delay purchasing as they wait for rates to fall again. Weaker demand would impact prices, dragging them down as a result.
Stronger negotiating power for buyers
With supply at a 12-year high, it’s already a buyers’ market, but their negotiating power increases if demand does fall, which could mean sellers may need to reduce asking prices further or accept lower offers if they want a quick sale.
First-time buyers could struggle
Higher interest rates increase costs all-round, since they are used to control inflation. That could prove an extra strain for first-time buyers who may find it harder to pass affordability tests or save enough for a deposit. It could also mean they stay renting for longer as a result, which in turn could drive rental price growth further.
Is a rate rise likely?
The market will be hoping not and the governor of the Bank of England hasn’t signalled that an increase is on the cards – but for now it’s just a case of wait and see.