When you’re thinking about buying a home, or even just keeping an eye on property prices, you’ll hear a lot about interest rates. But what do they really mean for the housing market? And how do changes in mortgage rates shape what people can afford, how many homes get sold, and even house prices themselves?
At Skyline, we know understanding this bigger picture can help you feel more confident about when to buy, sell or remortgage. So here’s our clear guide to how it all works.
Why Do Mortgage Rates Change?
Let’s start at the beginning. Mortgage rates are largely driven by the Bank of England’s base rate - the interest rate the Bank charges other banks to borrow money.
When the economy is strong and inflation is rising, the Bank may increase the base rate to help cool spending. When the economy needs a boost, the Bank often cuts rates to make borrowing cheaper, encouraging people to spend and invest.
Lenders adjust their mortgage rates to match these changes, but also factor in things like funding costs, risk, and competition in the market. So while the base rate sets the tone, you’ll see variation between lenders and products.
How Do Rates Affect House Prices?
This is where it gets interesting. Higher mortgage rates mean monthly repayments are more expensive for buyers. That directly affects affordability (how much someone can borrow, comfortably).
If rates rise significantly, fewer buyers may be able to afford the same house prices. This often slows demand, which can cool price growth or even push prices down.
On the flip side, lower mortgage rates make borrowing cheaper. Buyers can often afford larger mortgages, which increases demand, pushing prices up if there aren’t enough homes for sale.
What’s Happening in the UK Right Now?
In recent years, the UK housing market has felt this relationship keenly. During the pandemic, record-low interest rates and a stamp duty holiday fuelled huge demand, pushing house prices up to historic highs.
But with inflation rising, the Bank of England began increasing the base rate in 2022, peaking at 5.25%. Lenders raised mortgage rates in line with this, which squeezed affordability for buyers, leading to a slowdown in house price growth in many areas.
In mid-2025, we’ve seen the Bank start to cut rates again - currently at 4.25% as of June 2025. Many homeowners and first-time buyers hope this will make mortgages more affordable, bringing more buyers back to the market and supporting house prices.
How Do Rates Affect First-Time Buyers?
For first-time buyers, interest rates matter even more. Many stretch their budget to get on the ladder, so when rates are high, affordability becomes a real challenge.
Smaller changes in the rate can mean big changes in monthly payments. For example, the difference between a 4% and a 5% interest rate on a £250,000 mortgage can add around £130 to a monthly payment. That can affect whether someone can pass a lender’s affordability checks.
When rates drop, more first-time buyers can enter the market, which boosts demand at the lower end of the housing ladder, often helping sellers upsize too.
What About Homeowners & Remortgaging?
Higher rates don’t just affect buyers, they impact homeowners too. If you’re coming to the end of a fixed-rate mortgage, you might face higher repayments when you remortgage.
This can mean some owners decide to stay put rather than move, which affects the number of properties coming onto the market.
Conversely, when rates fall, remortgaging becomes more attractive. Homeowners may fix into lower rates or feel confident to move up the ladder, increasing market activity.
What Else Influences House Prices?
Interest rates play a huge role, but they’re not the only factor. Other things that shape the housing market include:
The supply of homes for sale
Economic growth and wages
Government schemes
Consumer confidence
Local demand vs national trends
That’s why even when rates rise, some areas with high demand and limited housing stock can stay buoyant.
What Does This Mean for You?
It’s impossible to time the market perfectly, but understanding how interest rates shape house prices can help you make smarter decisions.
If you’re a first-time buyer or moving soon, keep an eye on rate announcements. The next Bank of England base rate decision is due on 7th August 2025. Further cuts could bring mortgage rates down - but remember, waiting too long can mean missing out if demand picks up again.
How Skyline Can Help
At Skyline, we don’t just find you a good rate, we look at the bigger picture. We’ll help you:
Understand how much you can afford in today’s market
Compare deals across the whole market
Plan ahead for remortgaging so you don’t get caught out by future rate rises
Thinking of buying or remortgaging?
Book a free online chat with our independent mortgage broker, Tony and make your next move with confidence.
Your home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. A fee may be charged for mortgage advice. The amount will depend on your circumstances.
Skyline Mortgage Consultants Limited is an Appointed Representative of The Right Mortgage Ltd, which is authorised and regulated by the Financial Conduct Authority. Skyline Mortgage Consultants LTD is registered in England and Wales Number 8157062. Company Registered Office: Suite130, 394 Muswell Hill Broadway Muswell Hill London N10 1DJ.