2.3 Million UK Households Face Remortgage Shock as Rates Rise

By Olivia Hart

More than 2.3 million UK households will come off fixed-rate mortgage deals in 2027, landing on worse terms just as the Bank of England prepares to raise interest rates for the first time in nearly a year.

The Bank's nine-member monetary policy committee is widely expected to lift the base rate from 3.75% to 4% on 5 November. UK inflation climbed to 3.5% in September, and financial markets price in as many as four quarter-point increases over the next 12 months. That is the pessimistic case; many City economists expect two.

The refinancing wave is already underway. Roughly 700,000 borrowers were forecast to switch onto new rates between July and December alone, according to industry forecasts, before the 2.3 million households due to reach the end of their fixed terms next year, per data from UK Finance, the banking industry body.

Why are mortgage rates rising before the Bank moves?

The base rate has not changed since December last year. Yet swap rates, which drive the pricing of fixed-rate mortgages, have risen sharply amid bond market volatility triggered in part by energy prices and inflation fears linked to the war in the Middle East. A Bank rate increase could push those rates, and wider household costs, higher still.

The strain is showing in the housing market. Data released last week showed UK mortgage approvals fell to a near three-year low in September, as potential buyers were deterred by the jump in borrowing costs.

How bad is the income squeeze?

Alongside last week's budget, the Office for Budget Responsibility warned that household disposable incomes will fall by 0.6% next year after accounting for inflation. That is a sharp reversal from the 0.6% increase the watchdog had forecast in March. OBR economist David Miles called the outlook "a pretty grim picture."

The OBR now expects consumer inflation of 3.5% this year, against the 2% it forecast in March, with the energy price shock the main driver. EDF's latest forecast puts the rise in Ofgem's energy price cap — the mechanism that determines household bills — at more than £400 in January alone.

Chancellor John Healey made a £100 payout to 20 million households the centerpiece of his budget, saying he wanted to "take the pressure off in the coldest months and see people through to the spring." The package also cancelled fuel duty rises planned by Rachel Reeves and extended a VAT cut on electricity bills. It was paid for by tax rises on banks, savers and landlords.

A one-off £100 payment set against a £400-plus January energy cap rise and a 0.6% real income decline does not close the gap. The arithmetic favors the squeeze.

Why has the Bank waited this long?

The Bank of England has taken a wait-and-see approach to rising inflation since the start of the Iran war, in contrast to the US Federal Reserve, the Bank of Japan and the European Central Bank, all of which have already raised borrowing costs this year.

Governor Andrew Bailey has made clear the MPC is watching for evidence that rising prices feed into higher wages — the so-called "second-round effects" that can entrench inflation. Before the war in the Middle East, the Bank had been expected to cut rates several times this year, with inflation drifting back toward the 2% target.

Instead, an extended period of historically high oil prices — worsened by the closure of the Strait of Hormuz choking off supplies — has fed through into high and rising inflation.

What about the wider economy?

The picture is mixed. The UK was the joint fastest-growing G7 economy in the first half of 2026, beating expectations, which the Office for National Statistics attributed partly to AI-related sectors. But official forecasts for next year have been cut sharply, on fears that higher energy costs will eventually weigh on growth.

The Bank will publish updated forecasts for growth and inflation alongside this week's rate decision. Households refinishing their mortgages next year should read the fine print on those forecasts — and budget for the two-to-four rise scenario that markets and economists disagree on.