The Bank of England is widely expected to raise interest rates from 3.75% to 4% on Thursday (5 November), in a move that could put further pressure on mortgage borrowers and the housing market. If confirmed, the increase would be the first since August 2023 and would reverse part of the easing in borrowing costs seen since then.
Financial markets are pricing in a quarter-point rise as policymakers attempt to prevent another prolonged period of high inflation. The prospect of higher interest rates comes at a difficult time for estate agents, with mortgage affordability already restricting buyer demand and slowing property sales.
Inflation forces Bank's hand
The pressure on the Bank's Monetary Policy Committee (MPC) has intensified after annual consumer price inflation climbed to 3.5% in September. That is the highest level in 11 months and well above the Bank's 2% target.
Rising oil and gas prices, driven partly by the conflict in the Middle East, have added to inflationary pressures. Households also face higher energy bills. Ofgem's price cap increased by 3.6% in October, with a further substantial rise forecast for January.
Economists fear that sustained increases in energy costs could push up prices across the wider economy. Higher business costs could also feed through into wages and consumer prices, making inflation harder to control.
Economists expect rate rise
Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales (ICAEW), said an interest rate increase to 4% looks "all but certain". He believes policymakers are likely to view the move as a precaution against further inflation.
Thiru said: "The Bank of England's updated forecasts are likely to show a mixed picture of the UK economy, as slightly stronger growth this year is overshadowed by weaker growth further out as rising inflation and higher energy costs bite, keeping further rate rises on the table."
Deutsche Bank also expects rates to rise, predicting a 6-3 vote in favour of an increase. Its chief UK economist, Sanjay Raja, expects Bank governor Andrew Bailey to support the move. Raja said policymakers were likely to present higher rates as an "insurance policy on potential second-round effects".
Pantheon Macroeconomics is similarly confident that borrowing costs will increase. Its economists believe the Bank could signal the possibility of two rate rises as it attempts to contain inflation.
Further pressure on mortgage affordability
For estate agents, the immediate concern will be the potential impact on mortgage pricing and buyer confidence. Higher borrowing costs have already reduced purchasing power, particularly among buyers relying on larger mortgages.
An increase in Bank Rate would directly affect borrowers on tracker mortgages and could raise costs for some other variable-rate customers. Fixed mortgage rates are more closely linked to swap rates, which reflect expectations about future interest rates.
Much of Thursday's anticipated increase may therefore already be reflected in mortgage pricing. However, any indication that further rises are likely could place additional pressure on fixed-rate deals. That would present another obstacle for buyers already struggling to meet affordability requirements. It could also make it harder for agents to convert enquiries into agreed sales, particularly where purchasers are stretching their budgets.
Housing market recovery under threat
The expected rate rise comes as the property market struggles to regain momentum. Latest HMRC figures show seasonally adjusted residential transactions fell by 1% in September to 94,800. That represents a 4% decline compared with September 2025.
Zoopla has also reported that higher mortgage rates have reduced buying power by 15% for mortgage-dependent purchasers. The portal expects 100,000 fewer housing transactions in 2026 than in 2025.
Meanwhile, Connells Group has forecast house price growth of just 1% across Great Britain this year, followed by 1.5% in 2027. Its projections depend partly on mortgage rates easing. Connells has warned that if mortgage rates remain around 5%, small house price falls next year become a greater possibility.
Could more increases follow?
Thursday's decision may not be the end of the tightening cycle. Some economists believe another increase could follow in 2027 if inflation remains stubbornly high.
The Bank will also assess signs of resilience in the wider economy. UK economic output increased by 0.1% in August, while unemployment fell to 4.7% in the three months to August. Those figures could strengthen the case for policymakers to act before inflation becomes more entrenched.
For estate agents, the key question will be whether Thursday's decision marks a one-off precautionary increase or the start of a sustained period of higher borrowing costs. With affordability already stretched and transaction volumes weakening, the Bank's accompanying guidance could prove just as important for the housing market as the rate decision itself.
