What the changes to UK interest rates mean for mortgages

You may have seen that the Bank of England has been making some moves with interest rates lately. The base rate was cut to 4% on 7 August 2025 and has been held at this level following the bank’s review on 18 September.  

Whether you're dreaming of your first home or you're already on the property ladder, these changes could affect you.  

But while stable rates after recent cuts sound like reassuring news – and they often are – the full picture is a bit more nuanced than the headlines might suggest. 

What's been happening with UK interest rates? 

Let's start with the basics. The August cut marked the fifth reduction in rate over the past 12 months, bringing the base rate to its lowest level since March 2023. But in September, the Bank of England has chosen to hold rates steady at 4% – a decision that reflects the ongoing balancing act between supporting economic growth and managing inflation. It's been quite a journey from the peak of 5.25% we saw from August 2023 to August 2024.

While inflation fell below the Bank's 2% target in September 2024 for the first time in over three years, it’s risen over the past few months to 3.6%. This balancing act between supporting economic growth and keeping inflation in check is why the Bank of England's decisions aren't always straightforward. 

The September decision to hold rates at 4% was made by a 7-2 vote, with two members favouring a further 0.25 percentage point cut. This tells us that even the experts are weighing up complex factors when making these calls. 

What does this mean if you're looking to buy your first home? 

If you're a first-time buyer, you might be feeling cautiously optimistic right now – and that's understandable. The recent rate cuts have generally meant that lenders can offer more competitive mortgage deals, and the decision to hold rates steady may provide some stability for planning ahead.

But here's what's important to remember: getting access to the best rates isn't just about timing the market. Lenders are looking at you as an individual, and that's where your credit health becomes key. 

Think of it this way – even if interest rates drop further, the most competitive deals will still go to borrowers who present the lowest risk. That means having a strong credit score, a stable income, and a positive credit history. 

Already have a mortgage? Here's what to consider 

If you're already a homeowner, the impact of rate changes depends largely on what type of mortgage you have: 

Variable-rate mortgages: How the rates change depends on the type of variable rate mortgage you have. If it’s a standard variable rate, lenders may not change the rate just because the UK base rate has shifted. Others may be adjusted in line with the national changes relatively quickly. 

Fixed-rate mortgages: Your payments won't change during your fixed period, but it's worth thinking about what happens when your deal ends. While rates being held at 4% may offer some predictability for those planning ahead, others may still be hoping for further reductions in the coming months.

If your fixed rate is coming to an end soon, now might be a good time to start shopping around – but remember, you can always take steps to improve your credit health to give yourself the strongest chance of landing the best deal for you.  

Tracker-rate mortgages: These rise and fall in line with the UK base rate, so with rates now held steady at 4%, your monthly payments will remain unchanged for now. If rates are cut in future, your monthly payments will decrease, but if the base rate rises, your payments will too.

How to make the most of the current market 

Whether you're buying your first home or remortgaging, here are some practical steps that could help you access better deals: 

Check your credit report regularly: You might be surprised by what you find. Sometimes there are errors that are easily fixable, or you might discover ways to improve your credit score that you hadn't considered. 

At Checkmyfile, we give you the most detailed credit report out there – with your information from Experian, Equifax, and TransUnion in one place. We’re here for you at every stage of your credit health journey. And if you need help – our UK-based customer care team is in your corner.  

Don't just focus on your credit score: While your score gives you a quick snapshot, lenders look at the full details in your credit report. Understanding what's behind the number is much more valuable. 

Plan ahead: If you know you'll be looking for a mortgage in the next 6-12 months, start working on your credit health now. Some improvements take time to show up, but they can make a real difference to the deals available to you. 

Stay informed but don't panic: Yes, it's worth keeping an eye on rate predictions, but remember that your personal financial situation and credit report will always be more important than trying to time the market perfectly. 

Where Checkmyfile comes in 

We know that understanding your credit report can feel overwhelming, especially when you're dealing with something as significant as buying a home or remortgaging. That's why we pull together information from all the main credit agencies – Experian, Equifax, and TransUnion – so you get the complete picture of how lenders could see you. 

With your most detailed credit report, you can spot any potential errors that could hinder applications, understand what lenders are looking for, and track your progress as you work to improve your credit health. Because while you can't control what the Bank of England does with interest rates, you can take back control of your credit health.

FAQs

How is interest rate calculated? 

Interest rates in the UK are primarily determined by the Bank of England, which sets the base rate. This base rate influences the interest rates that banks and other financial institutions charge their customers for loans and mortgages, as well as the interest they offer on savings accounts.  

When the base rate is high, borrowing becomes more expensive, and saving becomes more rewarding. On the flip side, when the base rate is low, borrowing is cheaper and less is earned from savings. 

The Bank of England's Monetary Policy Committee (MPC) meets regularly to review and set the base rate, taking into account various economic indicators such as inflation, employment, and economic growth.  

Changes in the base rate can have a significant impact on the economy. For example, a rise in interest rates can help curb inflation by making borrowing more expensive and encouraging saving.  

But it can also slow down economic growth by reducing consumer spending and investment. On the other hand, a cut in interest rates can stimulate economic activity by making borrowing cheaper and encouraging spending, but it can also lead to higher inflation if demand outstrips supply.  

When is the next interest rate announcement? 

The Bank of England's next interest rate announcement is scheduled for 6 November 2025.