The Bank of England held its base rate at 3.75% in April (Bank of England, May 2026) - but that is not the story. The story is what it said next. With oil at $126 a barrel on Thursday (Bank of England, May 2026), the MPC (Monetary Policy Committee) has mapped out a worst case that puts rates at 5.5% across six hikes. If you have a mortgage, or you are planning to take one out, it is time to run the numbers.

What the Bank actually said

The MPC voted to hold at 3.75% but made clear it would act "forcefully" if oil prices hit $130 a barrel and stayed there for several months (Bank of England, May 2026). That is not an empty threat. Oil was already at $126 when the statement was released.

Governor Andrew Bailey described the energy price jump since the Iran war began as "a very big shock" (Bank of England, May 2026). Inflation, as measured by the CPI (Consumer Prices Index), rose to 3.3% in the year to March (Bank of England, May 2026) - well above the Bank's 2% target.

Huw Pill, the Bank's chief economist, was the only MPC member to vote for a rise this month. The other eight voted to hold. But the language around future decisions shifted noticeably toward action.

Three scenarios and what each one costs

The Bank laid out three distinct paths, and it is worth understanding each one rather than assuming the best.

Scenario A sees energy prices fall back quickly. CPI peaks at 3.6% by the end of this year (Bank of England, May 2026) before dropping below 3% by autumn next year. In this scenario, rates likely stay where they are.

Scenario B - which governor Bailey said he "placed more weight on" (Bank of England, May 2026) - sees a slower fall in energy prices. Inflation rises to 3.7% this year and stays elevated for longer. One or two rate hikes become "certainly possible", according to Capital Economics deputy chief UK economist Ruth Gregory (Capital Economics, May 2026). That puts rates in a range of roughly 4.0% to 4.25%.

Scenario C is the adverse case. Oil stays above $120 a barrel for the rest of this year. CPI peaks at 6.2% at the start of next year (Bank of England, May 2026). The Bank raises rates six times, reaching 5.5%. This is not the base case - but it is not ruled out.

The Bank did not attach probabilities to any scenario (Bank of England, May 2026). That is itself a signal of how uncertain the outlook is.

What it means for your monthly payment

Run the numbers. The Bank stated that average payments for those moving to a new mortgage deal are expected to rise by around £80 a month over the next three years (Bank of England, May 2026). Around 53% of mortgage holders are expected to see payments go up (Bank of England, May 2026).

That £80 figure is an average across all mortgage types and sizes. On a typical BTL property with a £250,000 interest-only mortgage, a move from 3.75% to 4.25% (Scenario B territory) adds roughly £104 a month to your cost. A move to 5.5% under Scenario C adds around £365 a month on that same loan. Your lender criteria and LTV (loan-to-value) ratio will affect the actual figure - these are illustrative calculations based on standard interest-only arithmetic.

The stress test implication is also worth noting. If lenders adjust their stress test rates upward in line with MPC signalling, some borrowers who currently qualify may find their options narrowing when they come to remortgage. That is a lender criteria question to raise with your broker now.

What this means for BTL investors

The Iran war's impact on energy and food prices feeds directly into rental affordability. Higher living costs for tenants put pressure on rent collection reliability. At the same time, higher mortgage costs compress BTL yields unless rents rise to compensate.

Ruth Gregory at Capital Economics noted that if oil prices fall back to around $95 a barrel, rates may well stay unchanged this year (Capital Economics, May 2026). That outcome remains possible if the Iran situation resolves more quickly than expected. Governor Bailey acknowledged a "more benign scenario" where rates stay on hold (Bank of England, May 2026).

But as an investor, you plan for what you can control. If your fixed rate expires before the end of 2026, the window to remortgage at current levels may be shorter than it appears. Product pricing from lenders tends to move ahead of the MPC, and banks are already repricing fixed deals upward in response to swap rate movements driven by the conflict (Bank of England, May 2026).

The bottom line

The Bank held this month. That matters. But the three-scenario framework it published is a clear signal that the next move is more likely up than down.

Governor Bailey's preference for Scenario B points to one or two hikes as the most probable outcome. Scenario C - six hikes to 5.5% - remains a real possibility if oil stays high. The average remortgager is already looking at around £80 more per month (Bank of England, May 2026) before any further rises land.

If you are on a variable rate, or a fix that expires in the next twelve months, you may wish to consider your options now. The cost of waiting could be measured in hundreds of pounds per month (around £365 on a typical £250,000 BTL at 5.5%). Run the numbers against your specific property and loan size - that is the only figure that matters.