The Bank of England has increased its base rate from 3.75% to 4%, marking its first interest rate rise since August 2023, as renewed inflationary pressures put further strain on the UK economy.
Higher global energy prices, driven by the conflict in Iran, are increasing costs for businesses and households. With inflation remaining above the Bank's 2% target, policymakers have decided that further action is needed.
The conflict in Iran has disrupted global oil and gas supplies, pushing up energy prices and increasing the cost of transporting and producing goods.
Higher fuel prices make food distribution more expensive, while manufacturers and retailers face rising operating costs that may be passed on to consumers.
Although raising interest rates cannot reduce global energy prices, the bank hopes to contain wider inflationary pressures by making borrowing more expensive and encouraging households and businesses to spend less.
Homeowners with tracker mortgages linked directly to the Bank of England base rate will see their interest rates increase by 0.25 percentage points.
Those on standard variable-rate mortgages may also face higher repayments, depending on their lender.
Homeowners with fixed-rate mortgages will see no immediate change, although those approaching the end of their deals could face higher borrowing costs when remortgaging.
However, some lenders have already factored an anticipated rate rise into their mortgage pricing.
Someone purchasing a £500,000 property with a 10% deposit would need a mortgage of £450,000.
Over a 30-year repayment term, an increase in mortgage rates from 5% to 5.25% would raise monthly repayments from approximately £2,416 to £2,485.
That's an additional £69 a month, or around £830 a year. This is an illustrative example; actual repayments depend on the mortgage product and individual circumstances.
Michael Peacock, Head of Chase Buchanan, comments:
“The increase isn't a great surprise. Although the Bank of England had held its base rate steady, mortgage lenders had already started increasing their rates in anticipation, so much of this has been priced into the market.
“November and December are traditionally two of the quieter months for property sales, particularly in family areas where Christmas preparations take priority. A rate rise is likely to reinforce that slowdown, although it's arguably better for this to happen now rather than in January, when buyers traditionally return to the market.
“However, the right property in the right street will always attract interest. Well-presented family homes in prime locations across Richmond, Twickenham, Teddington and St Margarets will continue to appeal to buyers.
“Pricing is particularly important in the current market. There's plenty of property available, and buyers have more choice, particularly when it comes to flats. Sellers need to be realistic about what their home is worth.
“Ultimately, people move because their circumstances change. Families grow, children get older and housing needs evolve. A modest change in interest rates or property prices doesn't mean those plans should be put on hold.”
Higher interest rates can affect affordability, but delaying a move does not guarantee better borrowing conditions or lower property prices.
For buyers, understanding their budget and securing appropriate mortgage advice remains essential. With more properties available and less competition during the quieter winter months, there may also be opportunities to negotiate.
For sellers, realistic pricing is key. Properties that are priced too ambitiously risk sitting on the market, particularly where supply exceeds demand.
At Chase Buchanan, we provide straightforward local advice, realistic valuations and regular updates throughout the buying and selling process.
Whether you're ready to move or preparing for the new year, we'll help you understand your local market and make informed decisions.
Thinking of selling? Book a free property valuation with Chase Buchanan.