The bank’s Monetary Policy Committee’s nine members voted 5-4 in favour of the 0.25% increase. However, interestingly, the opposing four – rather than voting against a rise – wanted rates to increase further to 0.75%.
It comes following the 0.15% rise in December and is the first time the BoE has increased its rate in two consecutive meetings since 2004.
And further rate rises look set to follow. Laura Suter, head of personal finance at AJ Bell, said: “For once the market and the Bank appear to be aligned, with the market expecting a rise to 0.5% today and an increase to 1.25% by year end.
“The Bank has confirmed it’s on track to raise rates to 1.5% by the middle of next year, sending out a large signal to the nation that it’s not just going to stop after two increases.”
Impact on mortgages
For anyone on a tracker or standard variable rate (SVR) mortgage, your interest rate is likely to go up. Borrowers on a fixed rate mortgage will not be impacted unless they are coming to the end of their deal.
David Hollingworth, associate director, communications at L&C Mortgages said today’s rate rise should act as an impetus for borrowers on variable rates to take action.
“If mortgage borrowers failed to take notice of the December hike in base rate then hopefully the decision to lift rates again will be enough to trigger a reaction, especially as four of the nine-strong Committee favoured a bigger increase,”. he said.
“Homeowners are already digesting the prospect of further increases to energy bills and steeling themselves for higher National Insurance and Council Tax.
“Looking for a silver lining, the good news is that they can take some action on their mortgage to pin down their biggest outgoing.”
Here’s more detail about how today’s rate rise will impact you:
If you are on a standard variable rate
These customers, David said, were the ‘most vulnerable’ to today’s announcement. Standard variable rates tend to be much higher than the rates available on the open market. They are generally paid by customers who have come to the end of their deal and either haven’t remortgaged yet or cannot remortgage.
David added: “Some but not all lenders have already followed the December increase and so we should expect they will rise again. That could put another £21 per month on a typical mortgage.
“Not all lenders have made a change yet though, so we could still see some lenders pass on an aggregate increase to SVR of 0.40% in one move.”
If you are on a fixed rate
Despite interest rates on fixed deals creeping up from their record low last year, David thinks fixed-rate deals still offer borrowers substantial savings, plus a chance to remove any uncertainty.
If you are safely locked into your fixed-rate for some time, you’ll be safe for the time being. But if you are looking to remortgage, they remain your best bet in current times.
David said: “Fixed rates are likely to remain by far the most popular product and five-year rates can be found from a little over 1.50%.
“However we continue to see a flurry of price changes in the market that has continued to edge many of the lowest rates up.
“Many will already be wrapped in the safety of a fixed rate but it makes sense to plan ahead. As deals come to an end borrowers will potentially emerge into a higher rate environment.
“Begin the process in good time to make sure a switch to a new deal is smooth and avoids any time on an SVR.
“Lender offers can be valid for up to six months, enabling borrowers to secure a rate now even if they are locked in for several months.”
Savings
Find out more about how today’s decision will impact your savings here.
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