Interest rates have a direct and significant impact on your mortgage, house prices, and savings. Whether you’re a first-time buyer or an existing homeowner, understanding how do interest rates affect mortgages is essential for navigating the property market. 

Mortgage Repayments and Borrowing Costs

Interest rates are a crucial factor when it comes to the cost of borrowing for your mortgage. The Bank of England base rate sets the tone for what lenders charge. When this rate rises, so do mortgage rates, directly increasing your monthly repayments.  

At the time of writing, the base rate is now 4.5% (June 2025).

Variable-Rate Mortgages 

If you have a variable-rate mortgage or a tracker mortgage, your repayments are closely linked to the base rate. A rise in the base rate will lead to higher monthly repayments, while a decrease means you’ll pay less.  

Currently, with the base rate at 5%, those on these mortgage types won’t see immediate relief, but there’s potential for cuts by the end of 2024. 

Fixed-Rate Mortgages 

Borrowers on fixed-rate mortgages are protected from short-term fluctuations in the base rate for the duration of their fixed term. However, once the fixed-rate period ends, you’ll need to remortgage at the current market rates, which could be higher if the base rate remains elevated. 

As you near the end of your deal, keep a close eye on rate trends using OneDome’s mortgage tools. If the base rate drops, you may secure a more favourable deal. 

Need help with choosing between fixed rate or variable rate mortgage? Read our guide.

 

House Prices and Market Demand

Interest rates don’t just affect mortgage repayments—they also influence house prices. When rates rise, borrowing becomes more expensive, reducing buyers’ purchasing power. This often leads to a decrease in demand, which can result in falling house prices. 

UK Housing Market in 2025

In 2023, house prices fell in part due to climbing interest rates, as well as the cost-of-living crisis. In 2024 however, the UK housing market has seen a positive uptick in anticipation of lower interest rates. House prices were up 2.3% in July 2024, and then a base rate cut later in 2024 is aimed at rejuvenating demand, especially in more affordable regions, leading to a potential recovery in prices.  

If you’re considering buying, use OneDome’s property search tool to track house price trends in your desired area. 

Supply and Demand Imbalances 

In areas with limited supply, demand remains competitive, which has helped stabilise house prices despite the national decline. This supply-demand imbalance can create localised price resilience, which is why local market conditions should always factor into your buying or selling decision. For up-to-date local property insights, visit OneDome’s property guides. 

The Impact on Your Savings

While rising interest rates increase mortgage costs, they also present opportunities for savers. Banks and financial institutions typically offer better interest rates on savings accounts when the Bank of England base rate is high. This allows you to earn more on your deposits, which can be especially helpful if you’re saving for a home deposit.

Check out our guide on how much mortgage you can afford.

Savings Growth vs. Inflation 

However, it’s important to note that inflation can erode the real value of your savings. If inflation remains high, the increased interest earned may not fully compensate for the decrease in your savings’ purchasing power.

Rate Cuts and House Prices 

If rates are cut, house prices may rise again, as cheaper borrowing costs stimulate demand. However, those with fixed-rate mortgages coming to the end of their term will need to closely monitor the market to secure a favourable deal when remortgaging.

To stay ahead of rate changes, visit OneDome’s market insights and mortgage comparison tools for updates and advice on locking in the best rates. 

Navigating the Housing Market with OneDome 

Interest rates are one of the most influential factors in the property market, impacting everything from mortgage costs to house prices and the return on your savings. Whether you’re buying, selling, or saving for a home, understanding how these rates affect your finances is key to making smart decisions.

At OneDome, we provide comprehensive tools and expert guidance to help you navigate the ever-changing housing market. We bring the entire home buying and selling process onto one convenient platform to save you time, money and stress.

OneDome is here to help

Choosing a mortgage is complex but OneDome is here to help. If you have any questions about the specifics of mortgages, the wider mortgage process or want tailored advice on the different types of mortgages that suit your situation you can:

Important: Your home may be repossessed if you do not keep up repayments on your mortgage.