The Bank of England’s latest decision to hold the standard base interest rate at 3.75% underlines how quickly the UK economic outlook has changed. At the start of the year, many borrowers, homeowners and market analysts were working on the assumption that the Monetary Policy Committee (MPC) would have delivered several rate cuts by now. Inflation appeared to be moving in the right direction, household budgets were still under pressure, and lower borrowing costs looked like a logical next step after a long period of elevated rates. Instead, the war in Iran and the resulting shock to global energy markets have forced policymakers into a far more cautious position.

The MPC voted by a 7-2 majority to keep rates unchanged, with two members preferring an immediate increase to 4%. That split matters because it signals a shift in the debate. A few months ago, the argument was mainly about how soon and how far the Bank could cut. Now, the question is whether the current level of rates is tight enough to prevent temporary energy-driven price rises from becoming embedded in wages, prices and inflation expectations. The Bank has made clear that monetary policy cannot bring down oil and gas prices directly, but it can influence how those price rises spread through the wider economy.

Governor Andrew Bailey’s comments reflect that dilemma. Recent falls in oil prices have been described as encouraging, especially after signs of progress towards peace and the possible reopening of the Strait of Hormuz, a vital route for global oil and gas supplies. But the Bank is not treating those developments as a reason to relax. Energy prices remain higher than they were before the conflict, and the rise in wholesale costs is still expected to feed into household bills and business expenses with a lag. Ofgem’s price cap is due to rise by 13% in July, meaning many families will feel the impact even if market prices have already started to ease.

This is why the latest hold is not a neutral or reassuring message for borrowers. It is better understood as an “active hold”: a pause that keeps the Bank’s options open while warning that future increases remain possible. Inflation stood at 2.8% in the year to May, still above the Bank’s 2% target, and officials expect price growth to rise later in the year as higher energy costs pass through the economy. At the same time, the labour market is showing signs of cooling, with vacancies falling to their lowest level in five years. The MPC is therefore balancing two risks: raising rates too soon could weaken the economy unnecessarily, but waiting too long could allow inflation to become more persistent.

For homeowners approaching the end of a fixed-rate mortgage, the consequences are immediate. The Bank’s base rate affects the cost at which banks and building societies borrow, and that in turn influences the mortgage rates offered to customers. Even without a fresh base-rate rise, expectations of future increases can push up swap rates and funding costs, which lenders often price into new fixed-rate deals. The result is that remortgaging has become more expensive than many households expected at the beginning of the year.

The scale of that shift is already visible. According to Moneyfacts data included in the brief, the average rate on a new two-year fixed mortgage deal is now 5.59%, up from 4.83% at the start of March when the Iran war began. The average five-year fixed rate has risen to 5.57%, compared with 4.95% over the same period. Those increases may sound modest in percentage-point terms, but on a large mortgage they can add hundreds of pounds to monthly repayments. For borrowers who had budgeted for cuts, the reversal is particularly painful.

This makes planning ahead essential for anyone needing to remortgage. Homeowners whose fixed deals are ending should avoid drifting automatically onto their lender’s standard variable rate, or SVR. SVRs are usually significantly higher than the most competitive fixed or tracker products and can change at the lender’s discretion. In a period when the market is worried about further inflation and possible rate increases, sitting on an SVR can expose households to unnecessary uncertainty and higher costs. For some borrowers, arranging a new deal several months before the current one expires may provide more control, even if the available rates are disappointing compared with expectations earlier in the year.

The pressure is likely to be uneven. Borrowers with substantial equity, strong credit profiles and stable incomes may still be able to access relatively better deals. Those with smaller deposits, weaker affordability calculations or stretched household budgets could find their options narrower. Lenders must assess whether repayments are affordable at current and potential future rates, and higher energy bills may reduce the disposable income used in those calculations. That means the energy shock can affect mortgage availability not only through headline interest rates, but also through the day-to-day cost pressures faced by applicants.

The wider UK housing market may also feel the strain. Higher mortgage rates reduce purchasing power because buyers can borrow less for the same monthly payment. First-time buyers are especially exposed, as they often have smaller deposits and less flexibility in their budgets. If mortgage costs remain elevated or rise further, some would-be buyers may delay purchases, reduce their target price range or stay in rented accommodation for longer. That can weaken demand, particularly in areas where house prices already look stretched relative to local incomes.

Sellers may then face a more cautious market. Homes could take longer to sell, asking prices may need to become more realistic, and transaction volumes may soften. However, a sharp national price fall is not inevitable. Supply remains constrained in many parts of the UK, wage growth has supported some household incomes, and employment has not collapsed. The more likely near-term outcome is a market that becomes slower, more price-sensitive and more divided by region and borrower profile. Higher-value markets and areas reliant on highly leveraged buyers could feel the impact more quickly, while locations with stronger affordability or cash buyers may prove more resilient.

There is also a psychological effect. Housing markets are driven not only by affordability, but by confidence. Earlier expectations of rate cuts encouraged the belief that mortgage costs would gradually ease through the year. The Iran war has disrupted that narrative. Buyers and sellers now have to consider a less comfortable possibility: that the next meaningful move in rates could be upward rather than downward if energy prices reignite inflation. Even if the Bank does not raise rates, the fear that it might can be enough to make households more cautious.

For now, the Bank of England is waiting for clearer evidence. The next MPC meeting at the end of July will take place with more information about the durability of the peace deal, the path of oil and gas prices, and the early impact of higher energy bills on inflation and household spending. If energy costs continue to fall and inflation expectations remain contained, pressure for further tightening may ease. But if volatility returns, or if higher bills feed into broader wage and price demands, the case for a rate rise could strengthen quickly.

The message for homeowners is clear: this is not a market in which to rely on old forecasts. The hoped-for sequence of rate cuts has been interrupted by geopolitical events and the inflation risks that followed. Anyone approaching a remortgage should review their options early, understand the cost of moving onto an SVR, and consider how resilient their finances would be if mortgage payments rose further. For the housing market as a whole, the Bank’s hold buys time but does not remove the pressure. Borrowing costs remain the key variable, and until inflation is convincingly back under control, both homeowners and buyers will have to navigate a market shaped by uncertainty rather than relief.