Interest Rates Rise to 4% as the Housing Recovery Slips to 2028

Two pieces of news arrived a day apart this week, and both point the same way. On Wednesday 4 November the property firm Savills said the UK housing market is now unlikely to recover until 2028. On Thursday 5 November the Bank of England raised interest rates for the first time since August 2023, taking Bank Rate from 3.75 to 4 percent.

Put those next to Nationwide's latest house price figures and the Budget on 28 October, and you have a fair picture of the market a flat seller faces going into 2027. This article sets out what each piece of news says, what it means for the people buying flats and what it means if you are selling one.

Why the Bank of England Raised Rates

Inflation is rising again, and the Bank wants to bring it back down to its 2 percent target. Consumer prices rose 3.5 percent in the year to September, and the Bank expects inflation to reach around 5 percent by the middle of 2027. Energy prices are the main reason it has risen. The conflict in the Middle East is in its ninth month, and the Bank says oil is 38 percent dearer and wholesale gas 81 percent dearer than when it made its July forecast. It estimates that higher energy prices added about one percentage point to September's figure on their own, mostly through fuel.

The Bank's worry is what economists call second-round effects: businesses raising their prices and workers pushing for higher pay to keep up, which would keep inflation high even after energy prices settle. The Bank says the evidence of that is still limited, but the risk has grown.

The vote was eight to one. Eight members of the Monetary Policy Committee, the nine-person panel that sets the rate, voted for a quarter-point rise. Catherine Mann voted for half a point, to 4.25 percent.

Will rates rise again?

Possibly. The committee says monetary policy "is not on a pre-set path", and its members do not agree on what comes next. The Governor, Andrew Bailey, said that unless news softens the risks to inflation, he could see "the argument for a further increase in rates". Megan Greene said "additional hikes will likely be required". Alan Taylor took the other side: "this is not the start of a hiking cycle". The next decision is due on 17 December 2026.

Savills' forecast, published the day before the decision, assumes one more quarter-point rise, to 4.25 percent by the end of 2027, with cuts starting in early 2028.

What the Rise Means for Mortgages

Most buyers will not see their mortgage quotes jump overnight. Lenders price fixed-rate mortgages from swap rates, which reflect what the money markets expect Bank Rate to do over the next few years. The markets expected this rise, so lenders had largely built it in already. Moneyfacts put the average two-year fixed rate at 5.97 percent and the average five-year rate at 6.00 percent on 2 November. At the start of February, the two-year average was 4.85 percent.

Tracker mortgages are different. They follow Bank Rate directly, so borrowers on a tracker will see their payments rise within weeks. Lenders often raise their standard variable rates too. That is the rate most mortgages move on to when a fixed deal ends.

What a buyer can now borrow

For sellers, the bigger effect is on what buyers can afford. Take a buyer who can manage £1,440 a month in mortgage payments. At February's average two-year rate of 4.85 percent, over 25 years, that payment covers a loan of about £250,000. At 5.97 percent the same payment covers about £224,000. That is roughly £26,000 less to spend on a flat, from the same monthly budget. These figures are our own, not a lender's quote. They assume a repayment mortgage at the same rate for the full 25 years.

Buyers who need a specialist lender feel it most. A flat with a short lease, unanswered questions about cladding or an unusual type of building often has only a small group of lenders willing to lend on it, and they already charge more than the high street. When mainstream rates rise, theirs rise too, from a higher starting point. Our guide to mortgage lenders and lease length explains where the lenders draw their lines.

Savills: No Real Recovery Until 2028

Savills expects UK house prices to end 2026 at the same level they started the year, then fall 1.5 percent in 2027. In total, it expects prices to fall about 3 percent from their peak before they start to recover.

From 2028, Savills expects prices to rise again: by 3.5 percent in 2028, 5 percent in each of 2029 and 2030, then 3 percent in 2031. Over the five years from 2027 to 2031, that adds up to a rise of 15.8 percent.

In June 2026, Savills said it expected the recovery to begin in 2027. It now expects the recovery a year later, because mortgage rates are not coming down as soon as it thought. Savills expects the average mortgage rate to stay above 5 percent until early 2028. Emily Williams, Savills' director of residential research, said: "The drawn-out conflict in the Middle East has pushed back the prospect of meaningful mortgage-rate relief." She does not expect the delay to cause a bigger fall in prices, as most homeowners have already had to cope with higher mortgage rates since late 2022.

London and flats come off worst

London is the weakest region in the forecast. Savills expects prices there to fall 3.5 percent in 2027 and to rise only 8.1 percent over the five years to 2031, against 23.3 percent in the North West. The reason is affordability. The average London home costs 11.3 times average earnings; in the three northern English regions it is below six.

Savills' forecast: London against the UK average

Forecast change in mainstream house prices each year. London falls further in 2027 and recovers more slowly in every year after it.

• London
• UK average

2027

• London-3.5%
• UK average-1.5%

2028

• London+2.0%
• UK average+3.5%

2029

• London+3.5%
• UK average+5.0%

2030

• London+3.5%
• UK average+5.0%

2031

• London+2.5%
• UK average+3.0%

Savills also expects houses to keep doing better than flats. It gives three reasons: limits on what buyers can afford, concerns about building safety and a growing supply of flats. That fits what we have been seeing for some time, and our article on why flat prices are falling behind house prices covers the longer story.

Who will be buying

Savills expects first-time buyers to lead the recovery from 2028. It says deposits are more affordable, compared with incomes, than at any time since 2008, and that looser lending rules are helping. By 2029 it expects first-time buyers to overtake people buying without a mortgage as the largest group of buyers. Home movers are expected to stay quiet until affordability improves, and buy-to-let landlords to keep buying less than they used to.

That matters for flats. First-time buyers are the natural buyers of one- and two-bedroom flats, and many of them borrow most of the price, so they are the buyers most exposed to mortgage rates. So until mortgage rates come down, the people most likely to buy a flat are also the ones whose budgets are squeezed hardest.

Where Prices Are Now

Prices have stalled rather than fallen across the UK as a whole. Nationwide's index for October, published on 30 October, showed prices unchanged on the month and up 0.5 percent on a year earlier, the slowest annual growth since January 2024. Its September release found flat prices essentially unchanged on a year earlier.

London flats have done worse. HM Land Registry's figures for August, published on 21 October, showed the average London flat down 5.0 percent in a year, against a 2.2 percent fall for London property as a whole. Our guide to selling a flat in London breaks that down by borough and by Inner and Outer London.

What the 28 October Budget Changed for Flat Owners

For most flat owners, the Budget changed little. Stamp duty, capital gains tax rates and inheritance tax thresholds all stay the same. Two changes do affect some flat owners:

• Landlords. From 6 April 2027, rental profit will be taxed at its own rates. The Budget raised the planned rates by a further two points, to 24, 44 and 49 percent, and that increase still has to pass into law. The new rates tax the rent you receive, not the sale of the flat. Our guide to renting out a leasehold flat has the detail.
• Homes worth £2 million or more. The High Value Council Tax Surcharge was confirmed for April 2028 in England. The owner pays it, not whoever lives there, at £2,500 to £7,500 a year depending on the value. Very few flats reach that level outside central London.

What It Means If You Are Selling a Flat

Price for the market you are in

The buyers viewing flats this winter are borrowing at close to 6 percent, and Savills expects mortgage rates to stay above 5 percent through 2027. A flat priced on 2022 sale prices, or on where you hope the market will be in 2028, is likely to sit unsold. The figures that count are recent sales in your building and street, and how long competing flats have been on the market. Zoopla found that four in five leasehold flats put up for sale in 2025 were still unsold six months later, and many of them will have been priced too high. Our guide to pricing mistakes covers how to avoid it.

Waiting for 2028 has costs too

If you do not need to sell, waiting is a reasonable choice. Savills expects prices to be higher in 2031 than they are today, London included. But waiting has costs, and some of them fall only on leasehold flats.

• The lease gets shorter. A lease with 82 years left today will be at 80 years by late 2028. At 80 years or less, marriage value becomes part of the cost of extending. For a flat worth £300,000 with a long lease, going from 81 to 79 years can take that cost from about £6,000 to about £19,000. The Leasehold and Freehold Reform Act 2024 will abolish marriage value, but that part of the Act is not yet in force and has no start date.
• The running costs continue. Service charges, ground rent, insurance and the mortgage all keep running while you wait, and service charges have risen sharply in many buildings since 2021.
• The forecast has already moved once. In June 2026, Savills said it expected recovery in 2027. Now it says 2028. Forecasts follow the news, and the news can change again.
• London's recovery is slow. On Savills' figures, a 3.5 percent fall in 2027 followed by 2 percent growth in 2028 leaves London prices still slightly below their end-2026 level at the end of 2028. That is our arithmetic from Savills' forecast.

If you let the flat out

Landlords face higher tax on rental profit from April 2027, and fewer landlords are buying. Savills expects buy-to-let buying to stay below its long-term average, so a flat sold with a tenant in place is likely to have a smaller pool of buyers than an empty one.

Ending a tenancy has also changed. Since 1 May 2026 the Renters' Rights Act 2025 has replaced fixed-term tenancies with periodic ones, so getting the flat back to sell means agreeing a date with the tenant or serving a four-month notice under Ground 1A. If a sale is likely in the next year or two, decide before you take on a new tenant. Our guide to selling a tenanted flat covers selling with the tenant in place and with the flat empty.

If you need to sell sooner

Not everyone can wait for 2028. If you are moving for work, dealing with a deceased estate, behind with mortgage payments or selling a flat that lenders are wary of, there are three main routes.

• An estate agency sale usually gets the highest price, if the flat is mortgageable and you can wait for a buyer and their lender. Our guide to the cost of selling a leasehold flat sets out the fees.
• A traditional auction gives you a fixed timetable. Contracts are exchanged when the hammer falls, and completion usually follows around four weeks later. That leaves little time to arrange a mortgage, so most auction buyers pay cash or use bridging finance. Our guide to selling a flat at auction explains how it works.
• A cash buying company is usually the quickest route, and fewer things can derail the sale since there is no buyer's lender involved. The trade-off is price: offers are usually 15 to 30 percent below market value. Our guide to how much below market value cash buyers pay explains why.

Our View

We buy leasehold flats. This week's news does not change what we would say to most owners. If a sale fits your plans, price the flat on today's market rather than on a forecast. If you can wait and the lease is long, there is no rush, and on Savills' forecast waiting should pay off over the next five years.

This market is hardest for owners who cannot wait: those with a lease close to 80 years, a deadline they did not choose or a flat that mortgage lenders turn down. Higher rates hit these owners first, and waiting until 2028 is not a realistic option for them. If that sounds like your situation, our how it works page explains what a cash sale involves and why it pays less than an estate agency sale.

This article reflects the position on 5 November 2026 and is general information, not financial advice. Forecasts are not guarantees, and the figures quoted will change as new data is published.