UK Homebuyers Braced for £1,134-a-Year Mortgage Hit
The Bank of England's warning about potential interest-rate rises has led to an increase in mortgage costs for UK homebuyers. According to Capital Economics, the average rate on a new mortgage could reach 4.8% by December 2026, up from its previous forecast of 3.9%. This would add around £95 a month, or £1,134 a year, to estimated monthly mortgage payments.
The consultancy also raised its expectations for government bond yields, which feed into mortgage pricing. As a result, it forecasts two Bank Rate increases to 4.25%, rather than the four previously anticipated by markets. However, even this reduced forecast would still lead to higher borrowing costs for around 1.5 million borrowers taking out new mortgages between now and the end of 2028.
The prolonged affordability squeeze could weaken the housing market, with Capital Economics indicating it may reduce its previous forecasts for house-price growth. The interest-rate outlook has deteriorated due to rising inflation, which reached 3.1% in August 2026, fueled by higher energy prices and crude oil above $100 a barrel.