Estate agents face another potential blow to buyer confidence today as the Bank of England prepares to announce its latest interest rate decision.
The Monetary Policy Committee (MPC) is widely expected to raise Bank Rate from 3.75% to 4% at noon, as policymakers grapple with renewed inflation pressures.
If confirmed, it would mark the first interest rate increase since August 2023, adding to concerns over mortgage affordability and the outlook for the housing market.
The anticipated rise comes as Savills warns that UK house prices could fall by 1.5% in 2027, with a sustained recovery unlikely before the second half of 2028.
The market is already showing signs of weakness. Latest HMRC figures reveal that residential transactions fell by 1% in September to 94,800, down 4% on a year earlier.
With mortgage costs squeezing purchasing power and sales activity slowing, another rate rise could make it harder for agents to secure offers and progress transactions.
Mortgage borrowers face fresh squeeze
A quarter-point increase would immediately push up repayments for homeowners on tracker mortgages linked to Bank Rate.
Some borrowers on other variable-rate deals could also face higher monthly bills.
Homeowners on fixed-rate mortgages would avoid an immediate increase. However, those approaching remortgage could face higher costs if lenders raise their rates.
Fixed mortgage pricing depends heavily on swap rates, which reflect expectations about future borrowing costs.
Lenders may therefore have already priced in much of today’s anticipated increase.
For estate agents, the bigger concern could be what the Bank says about further rate rises.
Any indication that borrowing costs will remain elevated could weaken buyer confidence and restrict mortgage affordability.
Savills warns house prices could fall in 2027
The prospect of higher interest rates comes as Savills downgrades its housing market forecasts.
The estate agency now expects average UK house prices to fall by 1.5% next year, following a broadly flat 2026.
That would leave property values around 3% below their recent peak.
Savills has also pushed back its expectations for a sustained recovery until the second half of 2028.
The firm no longer expects average mortgage rates to fall below 5% until early 2028.
Its forecast assumes Bank Rate will reach 4.25% by the end of 2027 before falling to 3.25% in 2028.
Emily Williams, director of residential research at Savills, said: “The drawn-out conflict in the Middle East has pushed back the prospect of meaningful mortgage-rate relief, which will weigh on buyer sentiment and affordability. We expect this will suppress activity and put pressure on prices next year.”
London, the South East and East of England face some of the sharpest predicted falls, with Savills forecasting declines of 3.5% in 2027.
However, the firm does not expect a more severe housing market downturn.
Williams added: “Most homeowners have already absorbed higher borrowing costs since late 2022, with relatively few still needing to refinance directly from rates below 2%, and the labour market remains resilient.”
Housing market already under pressure
Higher mortgage rates are already affecting purchasing power and transaction volumes.
Zoopla has reported a 15% reduction in buying power among mortgage-dependent purchasers.
The property portal also expects 100,000 fewer housing transactions in 2026 than last year.
Meanwhile, Connells Group has forecast house price growth of just 1% across Great Britain this year, followed by 1.5% in 2027.
Its outlook is more optimistic than Savills’ latest forecast but depends partly on mortgage rates easing.
Connells has warned that house prices could fall slightly next year if mortgage rates remain around 5%.
For agents, the concern is that higher borrowing costs could force buyers to reduce their budgets, renegotiate offers or postpone moving.
Inflation raises prospect of further rate hikes
The Bank faces pressure to contain inflation after annual consumer price growth reached 3.5% in September.
That was the highest reading in 11 months and remained well above the Bank’s 2% target.
Rising energy costs, partly linked to the conflict in the Middle East, have added to inflationary pressures.
Economists fear that sustained increases could push up prices across the wider economy.
Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales (ICAEW), has described an increase to 4% as “all but certain”.
He warned that stronger short-term growth could give way to weaker economic conditions.
“The Bank of England’s updated forecasts are likely to show a mixed picture of the UK economy, as slightly stronger growth this year is overshadowed by weaker growth further out as rising inflation and higher energy costs bite, keeping further rate rises on the table,” he said.
Deutsche Bank has forecast a 6-3 vote in favour of an increase.
Its chief UK economist, Sanjay Raja, expects policymakers to present higher rates as an “insurance policy on potential second-round effects”.
What happens next for estate agents?
Today’s announcement will determine whether the Bank ends more than three years without an interest rate increase.
However, the MPC’s voting split and economic forecasts could prove just as important as the decision itself.
Savills expects mortgage costs to remain elevated well into 2027, while Connells anticipates modest house price growth if borrowing costs ease.
The contrasting forecasts highlight the uncertainty facing estate agents.
With transactions already weakening and affordability under pressure, the Bank’s guidance on future interest rates could influence buyer confidence and housing market activity over the coming months.
