Interest rates rise to 4% – consumer credit reaction

The Bank of England has announced that it has raised the base interest rate from 3.75% to 4%.

The Bank has raised interest rates by 0.25 percentage points to 4%, as policymakers try to contain the energy shock from the Middle East conflict Policymakers were unanimous in their decision. They are trying to dampen demand by making borrowing more expensive, putting the brakes on spending and investment and keeping wage growth in check.

Rachel Duffey, CEO, PayPlan said “For millions of households, today’s interest rate rise will feel like yet another financial pressure arriving at exactly the wrong time. With Christmas approaching, the cost of living remaining high and 2.3 million fixed-rate mortgage deals due to expire next year, many families will be entering 2027 facing even more financial pressure.
“For people whose budgets are already stretched, even relatively small increases in everyday costs such as fuel, travel and household essentials can make it even harder to stay on top of finances. Our data shows that increased cost of living remains the number one cause of debt amongst people seeking support from PayPlan in 2026, with more than a quarter (26%) in all parts of the UK citing it as a contributing factor to their financial difficulties.

“Alongside measures to ease the cost of essentials, we’d like Government to play its part in breaking down the stigma around debt and help ensure people know that free, confidential debt advice is available. The earlier someone seeks support, the more options they are likely to have to get their finances back on track and avoid their situation becoming more severe. Government should also continue efforts to create a fairer debt system that supports affordable, sustainable repayment, giving people a clear pathway to deal with their debts while maintaining essential living costs.”

Adam French, Head of Consumer Finance at Moneyfacts, said “The rise in Base Rate to 4% is unwelcome news for tracker mortgage borrowers across the country, who could see their monthly repayments increase almost immediately. For someone with a £250,000 mortgage over 25 years, a 0.25 percentage point increase adds around £37 a month to their repayments. However, the outlook for fixed-rate mortgage pricing is very different.

“Today’s fixed mortgage rates have already priced in market concerns that Base Rate could hit 4.75% within the next 18 months or so. This means borrowers shouldn’t expect another significant jump in fixed rates simply because the Bank of England has raised rates today.

“The MPC struck a much more decisive tone in its fight against inflation, which could reassure the markets and while the swap rates which underpin mortgage pricing have risen a touch on today’s announcement, they are still notably lower than just a few days ago. Lenders price fixed mortgages against the risk of where interest rates could ultimately peak, rather than simply following Base Rate.

“However, the door has been left firmly ajar for future hikes and the longer the conflict in the Middle East goes unresolved, the worse the outlook for inflation and energy prices which can quickly put more upward pressure on fixed mortgage rates. For borrowers approaching the end of a fixed deal, it is a good idea to explore options early and secure a competitive rate, while keeping an eye on the market in case better offers emerge.”

John Phillips, CEO of Just Mortgages and Spicerhaart, said “While there has been some welcome news for the UK economy, with falling unemployment, GDP growth and a relatively muted Budget, inflation remains a very real problem. The decision to raise the base rate on Bonfire Night is an attempt to dampen the fuse, but with the Middle East conflict still ongoing and both energy and fuel prices expected to push inflation higher, it’s fair to say that there could still be plenty of fireworks ahead.

“Despite this decision being widely expected, we have still seen positive movements from multiple lenders over the last few days amid a recent easing in swap rates. It’s a reminder of the key message brokers need to be sharing with clients – mortgage rates and the base rate are not joined at the hip. While lenders will always want to be prudent in their pricing given the current climate, they also need to consider their competition and market share, alongside their progress against end-of-year lending targets.

“While rates do remain volatile, options are still out there for those looking to make moves or realise their dream of homeownership. Independent advice is the best way to not only explore those options, but to navigate the current market. Now is the time for brokers to be front-footed, proactive and visible.”

Simon Webb, Managing Director of capital markets and finance at LiveMore, said “While the market has priced in a rate rise over recent weeks, the decision will no doubt cause concern for many borrowers.

“For older borrowers, the impact of higher rates can be particularly acute when refinancing on a retirement income, where there may be less scope to absorb higher payments. Many are balancing mortgage commitments against rising household costs, while others still need to borrow later in life to support their changing circumstances. This makes access to suitable mortgage options and advice increasingly important, particularly if rates remain higher for longer.

“At LiveMore, we take a broader view of income than traditional high street lenders, helping borrowers over 40 access lending solutions that reflect their individual circumstances and needs.”