Will the UK Budget Affect UK
Mortgage And Interest Rates?

Short answer: the Budget doesn’t directly set your mortgage rate — the Bank of England does. But Budget choices can sway markets (gilts and SONIA swaps) that feed into fixed-rate mortgage pricing. With the Chancellor’s Budget set for 26 November 2025, here’s how it could matter for borrowers.

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What Is Driving UK Mortgage Pricing

Fixed-rate mortgages are largely priced off expectations for future interest rates, captured in SONIA swap rates, and by movements in gilt (UK government bond) yields. If a Budget loosens fiscal policy (for example, higher borrowing without credible offsets), investors may demand higher gilt yields. Higher gilt yields usually push up swap rates — and that can nudge fixed mortgage rates higher even if the Bank Rate is unchanged.

Right now, the Bank of England has held Bank Rate at 4% (decision taken on 5 November 2025), noting risks are “more balanced” but still watching inflation and the upcoming Budget. Markets will parse the fiscal stance for any inflationary or deficit implications that could alter the path for rates.

Bank of England, Fiscal Policy And Gilt/Swap Markets

The Bank of England is independent and targets 2% inflation. It sets Bank Rate; markets then price gilts and swaps from that — but fiscal policy can shift those market prices by changing the outlook for growth, borrowing and inflation. The BoE’s latest decision (published 6 November 2025) kept Bank Rate at 4%, with a close 5–4 vote and an explicit reference to the Budget date. That underscores how fiscal signals can influence the rate path via inflation expectations and market conditions.

On the fiscal side, HM Treasury has confirmed the 26 November 2025 Budget. If the measures are seen as disciplined (supporting disinflation and lowering borrowing needs), gilt yields and swaps could ease, helping lenders trim fixed rates over time. If measures are seen as inflationary or borrowing-heavy, the opposite can happen. The direction depends on the credibility and scale of what’s announced.

A quick primer: SONIA (Sterling Overnight Index Average) is the rate banks pay to borrow sterling overnight, administered by the Bank of England. Lenders reference future SONIA via swaps (e.g., 2- or 5-year) when setting fixed mortgages, so day-to-day moves in those swaps are often mirrored in pricing.

Economic Moves Affecting Mortgages

Inflation progress remains key. The Office for National Statistics reported CPI inflation at 3.8% year-on-year in September 2025, unchanged on the month — still above target, which helps explain why Bank Rate hasn’t been cut aggressively. If the Budget alters the inflation outlook (via taxes, energy policy or spending), that will flow through to gilt yields and swap rates and, in turn, to mortgage pricing.

For context on the market gauges that lenders watch, public snapshots this week show UK SONIA swap levels in the mid-3s (approximate, by tenor), and five-year gilt yields around the high-3s to low-4s — the precise prints move through each trading day. These are the “plumbing” that typically steer fixed mortgage offers.

What This Could Mean For First-Time Buyers And Remortgagers

If the Budget tightens credibly (reassuring markets on borrowing and inflation), it could ease gilt yields and swaps, opening the door for gradual reductions in fixed rates — not overnight, but directionally helpful if maintained.

If the Budget loosens materially without offsets, markets may price higher yields and swaps, which can delay or reverse recent falls in fixed rates, especially at the popular 2- and 5-year terms.

Remember, lenders also factor in funding costs, risk appetite and criteria. Even with a supportive Budget, changes to mortgage pricing usually happen in steps and can vary by lender and product.

Key Numbers (market-watch snapshots)

Bank Rate: 4.00% (decision meeting ended 5 Nov 2025, published 6 Nov 2025)
CPI inflation: 3.8% y/y (September 2025, published 22 Oct 2025)
Indicative SONIA swaps: around 2-yr 3.50%, 5-yr 3.57% (updated early November 2025)
UK 5-yr gilt yield: around 3.93% on 5 Nov 2025

As at 6 November 2025, London.

To discuss your options before and after the Budget, you can speak to a qualified mortgage adviser at Mortgage One.

If you’d like to understand what today’s moves could mean for you, speak to Mortgage One. We can explain your options and timings based on your circumstances. www.mortgageonefinance.co.uk

The information provided in this article is for general guidance only and does not constitute personal or regulated financial advice. For tailored advice specific to your circumstances, please contact Mortgage One directly.

Some Buy to Let mortgages are not regulated by the Financial Conduct Authority.

FAQs

1) Will the Budget make my mortgage rate go up or down immediately?
Not directly. The Bank of England sets Bank Rate. However, if markets react to the Budget by moving gilt yields and SONIA swaps, lenders may adjust fixed mortgage pricing over the following days and weeks.

2) Which parts of the Budget matter most for mortgage rates?
Measures that change the inflation and borrowing outlook — such as tax/spend plans and energy or housing policy — because they can move gilt yields and swap rates that inform lenders’ costs.

3) Does Bank Rate still matter if I’m fixing?
Yes. Bank Rate shapes the whole rate curve and influences expectations that drive swaps. But even with Bank Rate unchanged, fixed rates can move if swaps and gilts move.

4) What’s the current picture for inflation and the next BoE move?
Inflation was 3.8% in September 2025. The BoE on 6 November 2025 held Bank Rate at 4%, signalling it needs more evidence before easing further — and noted the Budget timing.

5) I’m remortgaging soon — should I wait until after the Budget?
That depends on your risk tolerance and deal end date. Budgets can create volatility both ways. If you’re within a product-transfer window, exploring options now and after the announcement can help you judge value.