“UK Interest Rates on the Rise – How I’m Losing £10K a Month on Mortgages and What’s Next for the Property Market”

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Let’s be real: watching your monthly mortgage payments shoot through the roof isn’t fun. My name’s Mark, I’m an entrepreneur and property investor with around £3 million worth of property under my belt—and about £2 million worth of debt attached to it. If you’re doing the math, that means interest rates matter a lot to me. They’re dictating whether I get to enjoy my profit or watch it vanish in interest payments.

In today’s post, I want to talk about what’s been going on with UK interest rates, where they might be headed, and how all of these changes are affecting folks like us—whether you’re an investor trying to grow your portfolio or someone who just wants to buy a home without losing sleep. I’ll also chat about the reasons behind rising rates and the possible future direction of the market. So buckle up and get ready for a deep dive into the wonderful world of mortgages, inflation, and everything in between!

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The Current State of My Own Portfolio

Let me start with a confession: I am currently losing around £10K a month on mortgages, purely because the interest rates on my loans have soared. When you owe £2 million, even minor changes in interest rates translate into big bucks. To give you an example, I have a six-bedroom HMO (House in Multiple Occupation) in Oxford on a £350,000 mortgage. Once upon a time, I had a nice, cozy 5-year fixed rate at historically low levels. But that fix is ending in January, which means I’ll be rolling onto a much higher interest rate—no more shield from the Bank of England’s new policy rate.

Over the last year or so, my outgoings on mortgages have more than doubled. That’s absolutely brutal for cash flow, and it’s something property investors across the UK are seeing in real time. So, if you’re in the same boat, you definitely aren’t alone.

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Why Have Interest Rates Shot Up?

Alright, let’s take a trip down memory lane to 2020. The world went sideways because of the pandemic. The UK government (among others) chose to print loads of money—also known as quantitative easing—and give that money out so people could stay at home, avoid work, and still pay their bills. At the same time, many businesses that produce goods and services shut down or slowed production, creating a lack of supply.

When you have more money circulating, plus fewer goods and services available to buy, prices naturally shoot up. That’s Economics 101: demand goes up, supply goes down, and suddenly your weekly grocery shop feels a lot more expensive. This big spike in prices is called inflation, and it’s something the Bank of England is committed to bringing down. Their main weapon to fight inflation? Hiking interest rates.

We’ve seen rates climb from 0.25% to around 5.25% in a very short time. This kind of jump is unprecedented in modern UK history. Think of it like a shock to the system: we’d all gotten used to super-low interest rates since the financial crisis in 2008.

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Why Do Higher Interest Rates Matter So Much?

If you’ve got a mortgage, higher rates mean your monthly payments get more expensive. If you’re a property investor like me, it can mean that your entire strategy of leveraging properties becomes a lot less profitable, at least in the short term. A typical buy-to-let mortgage could easily jump from 2% to 6% or more, effectively doubling or tripling your monthly interest costs. That’s cash out of your pocket.

But this isn’t just for property nerds like me. Higher interest rates affect everybody, because they can:

1. Slow down economic growth. People spend less money when their mortgages, car loans, and credit card interest rates go up.
2. Impact house prices. With higher mortgage costs, fewer people can afford the same property prices, so demand might drop. In theory, that should cool the market and prevent runaway house price inflation.
3. Strengthen the pound (though not necessarily, because if the dollar moves in tandem, the benefit might be wiped out). Typically, high interest rates can make a currency more attractive to foreign investors looking for good returns. But, as I’ll explain later, this is a tricky balancing act, because major economies like the U.S. might also be raising (or lowering) rates.

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The Impact of the Latest Budget and Tax Changes

We’ve also got fresh government budgets to consider. The current UK government has raised taxes for employers (employer’s National Insurance contributions), effectively taxing jobs. Here’s why that matters for inflation and interest rates:

• When businesses are hit with higher costs, they’ll do one of three things: raise prices, reduce pay rises for staff, or make staff redundant. None of those are particularly desirable outcomes.
• That process, in turn, can keep inflation elevated if companies choose to raise prices. And if inflation stays elevated, the Bank of England might keep rates higher for longer.

We also can’t ignore the effect of large public sector pay rises and infrastructure spending, which flood more money into the system. It’s a bit of a perfect storm if your goal is controlling inflation.

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The Global Picture: Following the Fed

The Bank of England doesn’t operate in a vacuum. Over in the U.S., the Federal Reserve (often called “the Fed”) has been hinting that they’ll only cut interest rates by 0.25% twice next year. You might wonder, “Why do we care what the Fed does?” But the truth is, it matters a lot. If the Fed keeps rates high and the UK cuts them too aggressively, the value of the pound weakens significantly compared to the dollar. When the pound weakens:

• Imports get more expensive. Most of our imported goods (fuel, construction materials, etc.) are priced in dollars. If the pound goes down, everything becomes pricier, which once again pushes up inflation.
• It becomes even harder for the Bank of England to rein in inflation, so they might be forced not to cut rates as much or as fast.

Hence, we’re stuck between a rock and a hard place: we want to cut rates to stimulate the economy, but doing so too fast can sink the pound and hike inflation.

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My Take on Future Interest Rates

Let me cut to the chase: I think UK base rates (the Bank of England rate) will gradually come down over the next three years, but nowhere near as low as they were in 2021. My personal guess is that by the end of 2025, we’ll see the Bank of England’s base rate somewhere below 4%. A few months ago, some analysts (like Goldman Sachs) were even predicting the rate might drop to 2.75%, but that’s looking less and less likely with new budget figures and global rate policy changes.

In short, we’ll probably be stuck at higher rates than we’re comfortable with for a while, but the worst might be behind us.

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How This Affects Property Investors

1. Different Markets, Different Stories

One fascinating aspect of the current property market is that the North and the South of England are reacting very differently. London and the surrounding areas, for instance, have been much more heavily impacted. Central London property is actually down because of a variety of factors—among them, the scrapping of non-dom tax advantages, which pushed away wealthy foreign buyers. When ultra-wealthy individuals leave London and sell their properties, that exerts downward pressure on prices.

Meanwhile, up North, places like Sheffield and Manchester have seen stronger price growth in the last few years, and they continue to look attractive for investors. Why? Because affordability is still relatively better. A typical three-bedroom house might cost £150,000 and rent out for around £1,000 to £1,200 a month. Even if the interest rate is 6%, an investor with a buy-to-let mortgage can still make those numbers work, because the monthly payment on interest-only might be somewhere in the £500–600 region.

2. Yields and Affordability

In many southern areas, you could be paying £400,000 or even £500,000 for a home that rents for only £1,800 to £2,000 a month. That yields a much lower annual return—somewhere around 4% or even less. When mortgage rates creep up to 5% or more, it can mean you’re barely breaking even (or losing money each month) on your buy-to-let.

By contrast, in the North, yields of 6–7% or higher are achievable, which can offset the sting of a higher mortgage rate. Essentially, the North-South divide in property investment is only widening. As rates stay high, investors are likely to be more tempted by northern cities, where you can still find affordable deals that cash flow nicely even if the cost of borrowing isn’t pretty.

3. Timing Your Next Move

One question I get a lot: “Should I wait for rates to drop before I buy my next investment property (or home)?” The truth is, if you find a good deal that can cash flow now—even at these higher rates—then waiting might not be the best strategy. Let’s say you lock in a property now, at a price that you’ve negotiated down because the market’s jittery about higher rates. You could refinance in a couple of years when rates (hopefully) come down. That way, you’ll not only benefit from potential capital appreciation but also pay less interest once you remortgage in the future.

If you have a property that can’t cash flow at today’s rates, or if you’re on the edge financially, it might be wise to hold off. After all, you don’t want to buy a property that pushes you into negative cash flow if something unexpected pops up—like maintenance issues, tenant vacancies, or further interest rate hikes. Always crunch the numbers with a margin of safety.

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Reading the Bond Market Tea Leaves

If you want a fairly reliable indicator of future interest rate moves, check out the UK 10-year government bond yields(also known as gilts). These yields reflect what large investors and institutions think about the long-term interest rate environment. If 10-year bond yields rise, it suggests that the market expects rates to stay higher for longer.

A few months back, 10-year gilt yields were in the low 3% range, suggesting the market was pricing in future rate cuts or at least stable rates. Recently, however, yields have crept up to around 4.5%, which signals a change in sentiment—investors now think rates will remain elevated and come down more slowly than initially forecast.

That said, these predictions aren’t set in stone. If the economy suddenly tanks or we see significant signs of recession, the Bank of England might be forced to cut rates more aggressively, dragging bond yields back down. Everything can change quickly with a few data points like inflation rates, unemployment numbers, or wage growth. So, as always, keep an eye on the bond market, but be prepared for things to shift.

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What I’m Doing Differently Now

You might be wondering how I’m coping with the higher cost of mortgages, especially as my old fixed rates expire. Here are a few things I’m focusing on:

1. Refinancing with Shorter-Term Deals
   While some might opt for a 5-year or 10-year fix, I’m looking at 2-year fixes or discount variables to see if I can ride out this high-rate environment and then lock in a better rate down the line. Yes, it’s a gamble—rates could be higher in two years, but I suspect they’ll be lower, and I’m willing to take that risk based on my current portfolio strength.
2. Focusing on High-Yield Areas
   Rather than expanding in the South, I’m looking further north for better yields. If I can find deals that work at 6% or even 7% mortgage interest, they’ll be a no-brainer if rates drop to 4% in a couple of years.
3. Renegotiating and Buying Below Market Value
   One of the best ways to mitigate the pain of higher interest is to buy a property below its market value. If you manage to snag a property for 10–15% under the going rate, you’ve essentially given yourself a little equity cushion and a better shot at positive cash flow. This is especially powerful when people are nervous about rates—there’s often a chance to negotiate better deals.
4. Keeping a Larger Emergency Fund
   With more uncertainty ahead, I’m maintaining a healthy emergency fund to cover potential rental voids or unexpected rate spikes. This extra cash cushion offers peace of mind and ensures I won’t be forced to sell at a bad time.

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Looking Ahead: Will Rates Return to “Normal”?

If your version of “normal” is 0.25% to 0.5% base rates, I hate to break it to you, but that was never really “normal.” That was an artificial environment created post-2008 financial crisis. Historically, interest rates hovering around 4% to 5% are far more common. We might dip below 4% for a spell in a year or two, but the era of nearly free money is probably behind us—unless there’s some major economic meltdown that forces drastic monetary policy again.

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Silver Linings for Investors (and Home Buyers)

It’s not all doom and gloom. If you have a solid plan, this environment can also be full of opportunities:

• Less competition: A lot of would-be investors are sitting on the sidelines, scared off by higher rates. That means fewer bidding wars and more leverage to negotiate prices down.
• Rental demand is strong: People struggling to buy are staying in the rental market longer, pushing up rents in many areas—especially those offering job opportunities.
• Possible rate dips in the near future: If you can handle today’s rates, even a moderate dip in the base rate can feel like a massive relief on your monthly bills.

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Embrace the Changing Landscape

No one said property investing was easy. It’s a game of strategy, patience, and sometimes pure grit. Having the right mindset is crucial:

1. Stay Informed: Rates, policies, and market sentiment can shift quickly. Keep an eye on Bank of England statements, bond yields, and macroeconomic indicators.
2. Review Your Portfolio: Run stress tests on your mortgages at different rate levels (7%, 8%, or even 9%) to ensure you could handle worst-case scenarios. It’s better to be over-prepared than blindsided.
3. Network and Learn: Talk to other investors, join property forums, attend meetups, and exchange ideas. Sometimes the best insights come from someone who’s in a very similar position to you.
4. Stay Flexible: The property world is cyclical. What’s out of fashion now might be in vogue in two years. If you can pivot your strategy—maybe from single-lets to HMOs, or from the South to the North—you’ll stay ahead of the curve.

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Final Thoughts

So, what’s next for UK interest rates? The short answer is that they’ll probably remain “higher than we’d like” for a bit longer. The days of 0.25% base rates are gone—at least for the foreseeable future. With the Bank of England and the Fed both signaling caution, we’re likely to see modest cuts down the line, but nothing to match those old near-zero rates that fueled a decade of cheap borrowing.

For property investors (and for anyone just wanting to buy a family home), the name of the game is adapting. If you’re losing sleep over today’s rates, you might need to reconsider your strategy—whether that’s buying in a more affordable market, refinancing into a better (even if not amazing) product, or simply cutting costs in your existing properties to shore up your cash flow.

I’m right there with you in this journey. Yes, it’s painful to lose an extra £10K a month on higher mortgages, but I’m also confident that cycles come and go, and the property market will eventually find its new equilibrium. In the meantime, keep your ears to the ground, your eyes on the data, and remember there are always deals to be made—especially when everyone else is being cautious.

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Join the Conversation

I’d love to hear how these rising interest rates are affecting you personally. Are you still looking to buy? Holding off? Planning to remortgage soon? Let me know in the comments below, and I’ll reply to every one of them.

Also, if you’d like to talk one-on-one about your property goals or pick my brain about how to buy property below market value, I’m offering free phone calls until I hit 10,000 subscribers on my channel. Check the link in the description if you want to chat. I’m not here to sell you anything—just happy to connect with fellow enthusiasts, exchange ideas, and help each other navigate these choppy waters.

Thanks for reading, and keep an eye out for my next post on Wednesday, where I’ll show you how to buy property and make money the day you buy it by hunting for below-market-value deals. If you enjoyed this article and found value in it, please give it a like or share—it really helps me out.

Until next time, stay informed, stay flexible, and stay optimistic. The property market might throw us curveballs, but with the right strategy, those curveballs can turn into opportunities.

Cheers, and happy investing!