Bank of England Holds Interest Rates at 4%: What Property Buyers and Homeowners Need to Know

The Bank of England has just announced it will maintain its base rate at 4% following today's Monetary Policy Committee meeting, confirming widespread market expectations. The decision, announced at midday today, comes as policymakers continue to navigate the delicate balance between controlling persistent inflation and supporting a cooling economy—a situation with significant implications for the UK property market.

The Decision: Stability Over Stimulus

Today's decision to hold rates was widely anticipated by financial markets, which had priced a 97% probability of rates remaining unchanged. This marks a pause in the Bank's easing cycle after five rate cuts over the past year, which brought the base rate down from its peak of 5.25%.

The previous August decision to cut rates from 4.25% to 4% was notably close, requiring a 5-4 majority vote, signalling the challenging environment the Monetary Policy Committee continues to face.

Inflation Concerns Drive Caution

The key factor influencing today's decision is the stubborn persistence of inflation above target levels. UK inflation remained steady at 3.8% in August 2025, nearly double the Bank's 2% target and significantly higher than many European peers.

The Bank of England forecasts inflation will rise further to around 4% in September, driven primarily by rising food and energy costs. Food inflation has climbed to 4.2% according to the British Retail Consortium, marking the steepest increase in 18 months, with household staples like butter, chocolate, and eggs seeing particularly sharp price rises.

Thomas Pugh, chief economist at RSM UK, captured the prevailing sentiment: "It's all but guaranteed that the Bank of England will hold interest rates at 4% at its meeting on Thursday", citing the need to balance rising inflation against a weakening labour market.

Labour Market Softening Provides Counterbalance

While inflation remains elevated, signs of cooling in the jobs market have tempered calls for rate increases. Recent ONS data revealed a 5.8% drop in job openings between May and July, with 718,000 positions available across most sectors. The unemployment rate has held steady at 4.7%, but wage growth has moderated to 4.8%.

Employment data shows payrolled employee numbers have fallen in seven out of the past eight months, with the unemployment rate rising by several tenths of a percentage point this year. However, economists note this remains a "slow-moving story" with much of the weakness concentrated in hospitality sectors affected by recent tax changes.

What This Means for Property Markets

Mortgage Rates: Confirmed Stability with Limited Relief

For property buyers, today's confirmed decision to hold rates means mortgage rates will remain elevated in the near term. Markets now expect the Bank to maintain 4% for several months, with the next cut potentially not until February 2026.

Fixed-rate mortgages currently on the market reflect this expectation of higher-for-longer rates. Two and five-year fixed deals are likely to remain in the 5-6% range, with lenders building in cushions against potential rate volatility.

Tracker mortgage holders will see no immediate relief from today's decision, with monthly payments remaining at current elevated levels.

Variable rate borrowers face continued uncertainty, with lenders' standard variable rates likely to track any future Bank Rate movements closely.

Regional Market Implications

The sustained higher rate environment will continue to impact different segments of the property market:

First-time buyers face a challenging environment, with affordability constraints likely to persist well into 2026. The combination of elevated borrowing costs and sustained house prices in many regions continues to stretch deposit requirements and monthly payment capabilities.

Remortgaging market faces particular pressure, with around 1.6 million fixed-rate deals due to expire in 2025 according to UK Finance. Many borrowers coming off ultra-low pandemic-era deals face significant payment shocks when refinancing.

Buy-to-let investors must contend with reduced rental yields as higher mortgage costs squeeze profit margins, though rental demand remains supported by limited housing supply.

Economic Context: A Balancing Act

Bank of England Governor Andrew Bailey has emphasised the committee faces "a finely balanced situation" with "upside risks to inflation" set against "labour market conditions which appear to be softening". This delicate balance explains the cautious approach to further easing.

The Bank maintains its commitment to a "gradual and careful approach" to any future rate reductions, with the timing dependent on how economic conditions evolve. Policymakers remain focused on ensuring inflation returns sustainably to the 2% target.

Looking Ahead: The Path to Lower Rates

Market expectations suggest limited scope for rate cuts in 2025, with most economists pushing back forecasts for significant easing. Capital Economics expects no further cuts this year, while Investec anticipates rates remaining at 4% until at least February 2026.

Key factors that could accelerate rate cuts include:

• Clear evidence of sustained disinflation in core services
• More pronounced labour market weakening
• Significant economic growth deterioration
• Reduced global inflationary pressures

Conversely, persistently high food and energy costs, robust wage settlements, or renewed global supply chain disruptions could delay easing further.

Property Market Outlook

Today's Bank of England decision to hold rates at 4% confirms that the property market must adjust to a higher interest rate environment for the foreseeable future. This normalisation process, while challenging for highly leveraged participants, should support long-term market stability by encouraging more sustainable lending practices and realistic property valuations.

For current homeowners, the message is clear: budget for higher refinancing costs and consider longer-term fixed rate products where appropriate.

For prospective buyers, patience may be rewarded as market dynamics gradually adjust to higher borrowing costs, though any significant price corrections are likely to be gradual given underlying housing supply constraints.

The Bank of England's next rate decision is scheduled for November 6, 2025, where updated inflation data and labour market trends will again shape policy direction.

Sources: Bank of England Monetary Policy Committee statements, Office for National Statistics inflation data, UK Finance mortgage market statistics, and financial market pricing data as of September 18, 2025.