The Bank of England has increased the base rate from 3.75% to 4%, marking its first interest rate rise in three years, as renewed inflationary pressures linked to the conflict in Iran continue to affect the UK economy.
The base rate peaked at 5.25% in late 2023, before policymakers began reducing it as inflation eased.
The latest decision follows months of rising global energy prices, which have pushed up costs for businesses and households. UK inflation reached 3.5% in September, well above the Bank's 2% target, raising concerns that price pressures could persist into 2027.
The conflict in Iran has disrupted global oil and gas supplies, pushing up energy and transport costs. These increases are filtering through the economy, with manufacturers, farmers and retailers facing higher bills, which are increasingly being passed on to consumers through higher prices.
While the Bank of England cannot control global energy prices, raising interest rates can help contain inflation by making borrowing more expensive and reducing spending.
Henry Knight, Managing Director of Springtide Capital, Chestertons' recommended mortgage broker, comments: "This rise was widely anticipated with markets pricing in a 96% chance of a 0.25% increase for this November announcement.
"Today's increase to 4%, this does not automatically mean fixed mortgage rates will increase, as lenders have already factored in up to 4 x base rate increases into their current pricing and we should not see rates move upwards significantly."
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 to their repayments, although those approaching the end of their deals could face higher borrowing costs when remortgaging.
Fixed mortgage rates are influenced by financial market expectations, meaning lenders may already have factored today's decision into their pricing.
For first-time buyers in London, even a relatively modest increase in mortgage rates can make a noticeable difference to monthly repayments.
According to the latest Land Registry figures, the average property purchased by a first-time buyer in London costs approximately £473,000.
Assuming a 10% deposit of £47,300 and a 30-year repayment mortgage of £425,700, an increase in mortgage rates from 5% to 5.25% would push monthly repayments from approximately £2,285 to £2,351. That's an additional £66 a month, or almost £800 a year.
However, mortgage rates do not automatically rise in line with the base rate, and the actual impact will depend on the mortgage product and lender.
Higher borrowing costs can affect affordability, particularly for buyers already stretching their budgets to purchase a home in London.
Some prospective purchasers may need to reassess their borrowing capacity, adjust their budgets or reconsider the type of property they can afford.
For sellers, realistic pricing will become increasingly important as buyers remain conscious of monthly mortgage repayments.
Adam Jennings, Head of Residential at Chestertons, comments: “While today's decision will inevitably concern some buyers, it's important to keep a sense of perspective. A quarter-point increase is unlikely to fundamentally change the plans of those who are financially prepared to move, although affordability will remain a key consideration.
“London's property market is made up of many different local markets, each with its own supply and demand dynamics. Buyers remain active, but they are increasingly discerning about value. For sellers, setting a realistic asking price from the outset and responding to market feedback will be particularly important.”
Although higher interest rates create challenges, they do not necessarily mean buyers and sellers should put their plans on hold.
For buyers, understanding their borrowing options and securing an agreement in principle can help establish a realistic budget before beginning their search.
For sellers, an accurate valuation, informed by current local market conditions, can help attract serious buyers and maintain momentum.
At Chestertons, our experienced local teams work together across London, combining detailed neighbourhood knowledge with a connected network of buyers and properties.
Our teams provide clear, practical advice to help you navigate changing market conditions and make informed decisions with confidence.