With interest rates continuing to make headlines, many homeowners and first-time buyers in London are wondering how rising rates will affect their mortgage payments, borrowing options, and the overall property market.
At The Mortgage and Protection Hub, we’ve helped hundreds of London borrowers navigate changing interest rates and secure the right mortgage deal.
In this guide, we’ll break down exactly how an interest rate rise could affect your current or future mortgage, and what you can do to protect yourself.
What’s Happening with UK Interest Rates?
The Bank of England sets the main interest rate, also known as the bank rate or base rate.
This is the benchmark for the interest charged by UK lenders on everything from mortgages and personal loans to savings accounts.
Over the past decade, interest rates remained at historic lows, but recent changes to the global economy, rising UK inflation, and geopolitical uncertainty, including Russia’s invasion of Ukraine, have led the Bank of England to adopt a gradual and careful approach to increasing rates.
How Rising Interest Rates Impact Mortgages
1. Monthly Mortgage Payments Could Rise
If you’re on a variable rate or tracker mortgage, your monthly repayments are likely to increase in line with the base rate rises.
These products follow either the Bank of England’s rate or your lender’s standard variable rate (SVR), which may go up whenever the bank rate does.
Even a small rate rise can significantly affect your monthly mortgage payments, especially in a city like London where mortgage balances tend to be high.
2. Fixed Rate Mortgages Provide Short-Term Protection
If you’re on a fixed rate mortgage, your interest rate and monthly payments will stay the same until your fixed term ends.
Many London homeowners secured fixed rate deals during the period of historic low rates, but as those expire, borrowers could face a sharp rise in mortgage costs when moving to a new deal or SVR.
If your fixed rate ends soon, it’s worth speaking to a mortgage broker now to explore your next steps.
3. New Lending Becomes More Expensive
Rising borrowing costs make new mortgages more expensive.
If you’re a first-time buyer, your monthly repayments could be higher than expected, depending on the size of your loan, deposit, and the new mortgage rate you’re offered.
Higher rates can also limit how much you’re able to borrow, especially if your household income is stretched.
Lenders use affordability checks based on potential future rate increases to ensure you can still pay if rates go up again.
Why Are Interest Rates Rising?
There are several reasons the Bank of England has chosen to raise rates:
- High UK inflation driven by energy costs and global supply chain issues
- A need to cool the housing market and stabilise house prices
- Efforts to align with actions from other central banks like the Federal Reserve and the European Central Bank
The aim is to slow price rises, protect the UK economy, and eventually allow interest rates to reduce once inflation is under control.
Who Will Be Most Affected?
The impact of rising interest rates will depend on your mortgage type and financial situation:
- Tracker and variable rate borrowers will be immediately affected
- Fixed-rate borrowers are protected for now, but may face increases when their deal ends
- New buyers and those remortgaging may find it harder to secure a better deal
- Buy-to-let landlords could see increased costs that affect their rental yields
If your current mortgage deal is coming to an end in the next 6–12 months, it’s a good time to start reviewing your options and preparing for potentially higher payments.
What Can You Do About Rising Interest Rates?
1. Review Your Current Deal
If you’re on a variable or tracker rate, consider switching to a fixed deal to lock in a stable monthly payment. If you’re already on a fixed deal, check when it ends so you can plan ahead.
2. Speak to a Mortgage Broker
A mortgage broker can help you compare options across UK lenders, including specialist products for first-time buyers, home movers, and self-employed applicants.
They’ll help you understand the full cost of borrowing, including product fees, and help you prepare a strong application based on your income, credit history, and long-term goals.
3. Reduce Outstanding Debt
Improving your affordability by reducing other monthly expenses or debts can increase your borrowing power and help you qualify for better rates.
4. Make Overpayments If You Can
If you can afford it, making regular overpayments now while your rate is lower can reduce your loan balance, making any future interest rate increases less painful.
5. Budget for Higher Monthly Repayments
Start adjusting your monthly budget now to account for possible increases in your mortgage payments.
This helps avoid financial stress later on and gives you a clearer view of how much you can afford if you’re buying a new property.
Why Stress-Testing Matters
Lenders already run affordability checks, but rising interest rates mean you should do your own “what-if” calculations first.
Ask yourself how higher interest rates might change your monthly mortgage payments if the Bank of England lifts the base rate again.
A quick stress test shows whether you could still meet those monthly repayments if the rate rise added two or three percentage points to today’s mortgage rates.
How to Run Your Own Stress Test
- Take the same amount you plan to borrow and look up the current two- and five-year fixed rate deals.
- Add two percentage points to those figures to mimic another potential increase by the central bank.
- Use an online calculator or spreadsheet to see the new mortgage costs and compare them with your current budget.
This simple exercise exposes any gap between your existing income and the higher payment you might face. If the result feels tight, consider borrowing a little less, saving a larger deposit, or choosing a longer mortgage term.
Building a Buffer
Aim to keep at least three months of projected mortgage repayments in an easy-access savings account.
Not only will those savings rates give you a small return, but the buffer also protects you from sudden changes to your variable rate or tracker mortgage.
When to Lock In a Fixed Rate
If your stress test shows that even a modest rise would stretch your finances, a new fixed rate mortgage could provide certainty.
While borrowing costs have climbed over the past decade, the vast majority of mortgage borrowers still prefer the stability a fixed deal offers, especially in London where loan sizes are high.
Stress-testing helps you understand how rising interest rates could affect your London mortgage before you sign on the dotted line.
By planning for the immediate impact of a future hike, you can choose a mortgage deal that fits your budget today and still feels comfortable if the UK economy forces rates even higher tomorrow.
Could Rates Go Down Again?
Eventually, yes. Once inflation is under control and the UK economy stabilises, the Bank of England may choose to cut interest rates.
However, this may not happen quickly, especially if other countries are also maintaining high rates.
Until then, mortgage borrowers should focus on securing long-term stability with a manageable mortgage deal and sensible monthly payments.
The Bigger Picture: House Prices and the Mortgage Market
Rising interest rates often lead to a cooling of house prices, especially in high-demand areas like London. While this may make properties more affordable, it also affects buyer sentiment and new lending activity.
The mortgage market remains competitive, but borrowers will need to be more prepared, proactive, and informed to secure the best possible deal.
Get Expert Support from The Mortgage and Protection Hub
At The Mortgage and Protection Hub, our experienced team works with clients across London and Brighton to help them navigate a changing mortgage market.
Whether you’re remortgaging, buying your first home, or concerned about how rising interest rates could affect your mortgage, we’re here to help.
We’ll review your current mortgage, assess your financial situation, and provide honest, expert advice to help you make confident decisions.
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