More than 2.3 million UK households face higher mortgage payments when their fixed-rate deals expire in 2027, as financial markets anticipate the Bank of England’s first interest rate rise since December last year.

The Bank’s nine-member monetary policy committee is widely expected to raise the base rate from 3.75% to 4% on 5 November, after annual inflation climbed to 3.5% in September. Markets expect four quarter-point increases over the next 12 months, although those expectations are not confirmed policy decisions.

Borrowers are already encountering more expensive deals despite the unchanged base rate. Bond-market volatility, driven partly by energy prices and inflation concerns linked to the Middle East war, has pushed up the swap rates used to price fixed-rate mortgages. A base-rate increase could add further pressure to mortgage rates and household costs.

UK Finance, the banking industry body, puts the number of households reaching the end of fixed deals next year at 2.3 million. Another 700,000 had been forecast to move on to new rates between July and December this year, with thousands still due to refinance in the final months.

The effects extend beyond existing borrowers. Figures released last week showed mortgage approvals fell to a near three-year low in September as higher borrowing costs deterred prospective buyers.

Household finances are also weakening. Alongside last week’s budget, the Office for Budget Responsibility forecast that disposable incomes would fall by 0.6% next year after inflation, reversing its March prediction of a 0.6% increase. Its David Miles characterised the outlook as bleak.

The watchdog expects the energy price shock to push inflation to 3.5% this year, against its March forecast of 2%. EDF’s latest forecast suggests Ofgem’s energy price cap, which determines household bills, will rise by more than £400 in January.

Chancellor John Healey made a £100 payment to 20 million households the centrepiece of his budget, saying it would ease pressure through winter until spring. His package also cancelled fuel duty increases planned by Rachel Reeves and extended a VAT cut on electricity bills, funded by higher taxes on banks, savers and landlords.

Since the start of the Iran war, the Bank has waited to assess rising inflation. The US Federal Reserve, Bank of Japan and European Central Bank have already raised borrowing costs this year. The decision now approaching would bring additional pressure on borrowers while households are also absorbing higher food and energy bills.