After a period in which many mortgage borrowers had been hoping that interest rates would continue to fall, the outlook has become considerably less certain.
Bank Rate currently stands at 3.75%, while UK inflation has risen to 3.1%. Higher energy prices and continued geopolitical uncertainty have increased concerns that inflation could rise further, and that the Bank of England may have to respond.
Oportfolio Mortgages’ Head of Marketing & Communications, Louis Mason, attended HSBC UK’s latest economic update webinar, “From the Middle East to Manchester”, on the 25th of September 2026.
During the webinar, HSBC Senior Economist Liz Martins discussed the outlook for the UK economy, inflation, interest rates and housing market, including HSBC’s current expectation that Bank Rate may need to rise again before eventually beginning to fall.
So, what could happen to UK interest rates next, and what could it mean if you’re buying a home, remortgaging or already have a mortgage?
Quick Answer: Will UK Interest Rates Rise Again?
UK interest rates could rise again, but another increase is not guaranteed. Bank Rate is currently 3.75%, and three members of the Bank of England’s Monetary Policy Committee voted to raise it to 4% in September 2026. Higher energy prices and inflation have increased the risk of further rises, although the Bank’s next decision will depend on how inflation and the wider economy develop. HSBC currently forecasts that Bank Rate could reach 4.25%, but this remains a forecast rather than a confirmed outcome.
What is happening to UK interest rates?
At its September meeting, the Bank of England held Bank Rate at 3.75%.
However, the decision was not unanimous. Six members of the Monetary Policy Committee voted to keep Bank Rate unchanged, while three voted to increase it to 4%.
The Bank of England is particularly concerned about higher energy prices and the possibility that these could lead to more persistent inflation.
Although Bank Rate hasn’t increased yet, the possibility of higher rates has therefore returned.
Why could interest rates rise again?
The main problem is inflation.
UK CPI inflation reached 3.1% in August 2026, above the Bank of England’s 2% target. Transport, particularly motor fuels, made the largest upward contribution to the latest increase.
HSBC’s economist explained during the webinar that the bank currently expects inflation to rise further, potentially reaching 4.6% in Q1 2027 under its latest forecast.
The main driver is higher energy costs, with oil and gas prices, geopolitical tensions and disruption affecting global energy markets. Food prices were also identified as another potential inflation risk.
However, HSBC’s forecast should not be interpreted as a certainty. Energy prices and geopolitical events can change quickly, and a significant improvement could alter both the inflation and interest-rate outlook.
The Bank of England’s next interest-rate decision is scheduled for the 5th of November 2026.
Could Bank Rate rise to 4.25%?
HSBC’s current base-case forecast is for two Bank Rate increases, potentially taking the rate from 3.75% to 4.25%.
During the webinar, HSBC suggested increases could potentially come in November 2026 and February 2027.
However, this is a forecast rather than a Bank of England decision.
If inflation continues rising and higher prices become embedded in wages and the wider economy, the Bank could decide higher rates are necessary.
Alternatively, if energy prices fall and inflationary pressures ease, rates may not need to rise as far, or potentially at all.
Why haven’t interest rates already gone up?
One particularly interesting point from HSBC’s webinar was the role being played by financial markets.
Mortgage pricing isn’t determined by Bank Rate alone. Swap rates and lenders’ funding costs are also important when lenders price fixed-rate mortgages.
Financial conditions have already tightened significantly. In September, the Bank of England noted that quoted two-year fixed mortgage rates were around 0.95 percentage points higher than before the Middle East conflict.
In effect, some of the work normally associated with a Bank Rate increase is already happening through financial markets.
This could give the Bank more time to assess whether inflationary pressures persist before deciding whether another increase is necessary.
Will mortgage rates go up if Bank Rate rises?
Not necessarily, and certainly not by exactly the same amount.
Fixed mortgage rates are influenced by several factors, including:
- Swap rates
- Financial-market expectations
- Lender funding costs
- Competition between lenders
- Loan-to-value
- Individual lender appetite
Markets often react to expected Bank Rate changes before the Bank of England actually makes them.
Equally, mortgage rates can sometimes fall before Bank Rate does if markets begin expecting lower rates in the future.
This is why simply waiting for the Bank of England to cut rates isn’t necessarily the same as waiting for mortgage rates to fall.
As we covered in our latest UK mortgage market update, fixed mortgage rates have already been moving higher despite Bank Rate remaining unchanged.
Could interest rates fall again in 2027?
Despite its expectation of near-term increases, HSBC does not currently expect rates to remain higher indefinitely.
Its base case is that the current inflation shock will be relatively sharp but temporary.
HSBC highlighted an important difference between the current situation and the inflation experienced earlier in the decade: wage pressures appear much weaker.
The labour market is also considerably less tight. If higher energy prices don’t feed into persistent wage and price increases, HSBC expects the Bank of England could begin gradually reducing rates again during 2027.
Again, this is a forecast and could change as new economic data becomes available.
What does this mean if your mortgage is coming up for renewal?
The uncertainty creates an understandable dilemma.
Should you secure a new deal now? Should you wait in case rates fall? Should you choose a two-year or five-year fixed mortgage?
There isn’t one answer that will be right for everybody. Your decision may depend on:
- When your existing deal expires
- Your mortgage balance and loan-to-value
- Your income and expenditure
- How much payment certainty you want
- Whether your circumstances may change
- Your attitude towards rates moving up or down
Trying to perfectly predict the bottom of the mortgage market is extremely difficult.
A mortgage broker can compare the options currently available and help you understand how different products could affect you, rather than basing a decision entirely on an economic forecast.
What is happening to the UK housing market?
HSBC also discussed signs of weakness in the housing market.
Higher mortgage costs continue to affect affordability, while the balance between homes coming onto the market and new buyer demand suggests relatively soft conditions.
There are substantial regional differences, though.
One of the clearest examples highlighted during the webinar was London, where housing remains considerably less affordable relative to income. HSBC highlighted falling house prices in the capital compared with stronger growth in more affordable regions such as the North East.
For London buyers, this creates an interesting environment. Lower or stagnant property prices may create negotiating opportunities, but mortgage affordability can make it harder to borrow the amount required.
Why mortgage affordability could become increasingly important
For some borrowers, the interest rate itself is only part of the challenge.
How a lender assesses your income can significantly affect how much you may be able to borrow. This can be particularly relevant for borrowers with:
- Bonuses or commission
- Overtime
- Contractor income
- Company-director income
- Retained profits
- Multiple sources of income
- High-value borrowing requirements
Different lenders can assess these circumstances differently.
For buyers in London and other high-value property markets, understanding those differences can be particularly important.
What about first-time buyers?
First-time buyers face another challenge: rents.
HSBC highlighted signs that rental demand is increasing again while the supply of rental property remains constrained.
If this leads to further rent increases, prospective buyers may find it harder to build their deposits.
However, depending on individual circumstances, potential routes to home ownership can include gifted deposits, Joint Borrower Sole Proprietor (JBSP) mortgages, buying jointly, higher loan-to-value mortgages and lenders offering higher income multiples to eligible borrowers.
These options aren’t suitable for everybody, but they demonstrate why it’s worth looking beyond a simple online affordability calculation if the numbers initially don’t appear to work.
Should you wait for mortgage rates to fall?
This is understandably one of the questions we’re asked most frequently.
Unfortunately, nobody can say with certainty where mortgage rates will be in six or twelve months.
HSBC’s latest forecast demonstrates that perfectly. Earlier expectations of a relatively straightforward journey towards lower rates have been disrupted by renewed inflationary pressure and geopolitical events.
Oliver Whitehead, Managing Director at Oportfolio Mortgages, says:
“We speak to clients all the time who are understandably wondering whether they should secure a mortgage now or wait and see what happens to rates. The difficulty is that the outlook can change very quickly, as we’ve seen again recently.
Rather than trying to predict the perfect time to act, we encourage clients to look at their own circumstances, what they can comfortably afford and the options available to them now. Our job as advisers is to help them understand those options and make an informed decision that works for them, rather than trying to second-guess exactly where rates might be in six or twelve months.”
Rates could rise, remain where they are, or the outlook could improve if inflationary pressures ease more quickly than expected.
Oportfolio’s view
The mortgage market has become increasingly difficult to predict.
However, uncertainty doesn’t necessarily mean borrowers should stop making decisions.
The important thing is to separate what we know today from what economists expect could happen next.
We know Bank Rate is currently 3.75%. We know inflation has risen to 3.1%. We also know that financial markets and mortgage pricing have already reacted to renewed inflation concerns.
What happens next will depend heavily on inflation, energy prices, economic growth and geopolitical developments.
That’s why we believe mortgage decisions should be based primarily on your own financial position and objectives rather than trying to perfectly time an uncertain market.
For borrowers with more complicated circumstances, lender selection can also be just as important as the headline interest-rate environment.
Speak to a mortgage adviser
If your mortgage deal is ending in the next few months, you’re considering buying a property or you’re concerned about what changing rates could mean for your mortgage, we can review your circumstances and explain the options currently available.
At Oportfolio Mortgages, we work with first-time buyers, home movers, remortgage clients, landlords and borrowers with more complex income or higher-value mortgage requirements.
