24/09/2026
WHY ARE MORTGAGE RATES GOING UP ?
APOLOGIES - however, this is worth reading! The Bank of England has kept its headline interest rate at 3.75%, yet mortgage borrowers are seeing fixed-rate deals become more expensive. So what is going on, and what should you do if you are buying a home or your current deal is coming to an end?
If you thought an unchanged Bank Rate should mean unchanged mortgage rates, you would be forgiven for wondering what has happened to the market.
On 17 September, the Bank of England’s Monetary Policy Committee voted to keep Bank Rate at 3.75%1.
Yet the cost of new fixed-rate mortgages has been moving higher.
In fact, the Bank of England says its measure of quoted rates on two-year fixed-rate mortgages is now around 0.95 percentage points higher than it was before the conflict in the Middle East began earlier this year1.
For borrowers, that can seem contradictory.
It isn’t.
The reason is that Bank Rate is only one part of the story when lenders decide how much to charge for a fixed mortgage.
And right now, the financial markets that help determine the price of those mortgages have been moving even though Bank Rate itself has not.
Bank Rate stayed at 3.75%, but the decision was not unanimous
First, it is worth looking at what actually happened at the Bank of England’s latest meeting.
The Monetary Policy Committee voted six to three to leave Bank Rate unchanged at 3.75%. Three members wanted an immediate increase to 4%1.
The Bank is grappling with renewed inflationary pressure, particularly from higher energy prices1.
UK Consumer Prices Index inflation reached 3.1% in August, above the Bank’s 2% target, and the Bank said inflation was likely to rise further over the coming quarters1.
That does not mean Bank Rate will necessarily rise at the next meeting.
But it does help explain why financial markets have become more concerned about how long interest rates could remain elevated.
And that matters enormously for fixed mortgages.
Fixed mortgage rates do not simply follow Bank Rate
This is probably the biggest misconception about mortgage pricing.
Bank Rate influences borrowing costs across the economy, but lenders do not generally set a two-year or five-year fixed mortgage simply by taking today’s Bank Rate and adding a margin.
Fixed mortgages are much more closely linked to what are known as overnight index swap rates, or OIS rates2.
The Bank of England describes medium-term OIS rates as key reference rates for fixed-rate mortgages2.
You can think of these market rates as reflecting the price of interest rates over the period ahead, together with a premium investors require for uncertainty.
So a lender offering you a two-year fixed mortgage today is interested not just in Bank Rate this morning, but in the expected cost and risk of providing fixed-rate money over the next two years2.
When those market rates rise, fixed mortgage rates can rise too. They can do so without the Bank of England changing Bank Rate at all.
