The Bank’s Monetary Policy Committee voted 8-1 for the 0.5% hike, which although not unexpected, marks the biggest one-month increase to rates in 27 years.
According to Alice Haine, personal finance analyst at Bestinvest, this takes the base rate to the highest level since the financial crisis.
And, she added: “This is biggest interest rate rise since February 1995, with the move effectively taking money out of people’s pockets by increasing borrowing costs as the Bank of England looks to curb the worst bout of inflation in 40 years.
“The Monetary Policy Committee’s 8-1 vote in favour of the 50-point hike is a dramatic pivot for the BoE after more than a decade of easy money, with the aim to ease inflation back down towards the 2% target, while taking interest rates to more normal levels.
“While it is unusual for a central bank to raise rates when the economy is in danger of falling into a recession, the country is in the grip of a cost-of-living crisis as global challenges such as Ukraine’s war with Russia drive up food and fuel prices to dizzying highs.”
How will the 0.5% interest rate rise impact my mortgage?
Experts say this 0.5% rise to interest rates will be the first that will be significantly noticeable on people’s household budgets, which are already under strain because of rising inflation and other economic challenges.
Karen Noye, a mortgage expert at Quilter said: “Up until this point, the increase in interest rates would have meant a relatively small rise in mortgage bills but this hike will certainly start to hit people’s budgets at a time when funds are already stretched due to the cost-of-living crisis.”
Borrowers on variable rates and tracker mortgages will no doubt be getting rather familiar with these regular increases. The latest hike will mean their mortgage repayments will rise accordingly.
Brokers have reported there has been an increase recently in borrowers locking into fixed rate mortgages as they attempt to shield themselves from further rate rises.
And the advice for anyone on variable deal is still to look for a fixed rate deal.
But what if you are already on a fixed-rate deal, which is due to expire?
Karen added: “Unless you have recently opted for a long fixed rate deal then it is likely you’re going to need to face the music sooner rather than later when your current deal comes to an end.
“In the next year, there will be thousands of borrowers forced to walk out into a completely different interest rate environment and secure a new deal.
“This means there will be a slew of new borrowers suddenly having to partake in the misery that those struggling with tracker or standard rate mortgages are already bearing.”
Mortgage experts suggest first checking when your deal is due to expire – if it’s within the next six months you should be able to lock into a new deal at the current rate before the BoE hikes its base rate further.
This is because most lenders allow borrows to take out a deal at least three months and often up to six months before it becomes active.
Alice Haine confirmed this. She said: “For homeowners with rates expiring this year, the picture is less rosy. The best strategy is to lock in a new fixed-rate deal now as lenders allow borrowers to secure a rate up to six months in advance of the deal starting.”
What’s more, she also had advice for anyone who was due to remortgage next year.
“For anyone with a mortgage set to expire next year, overpay now to reduce the hit when the renewal date comes around. The more capital you have paid off, the less of a blow a rise in interest rates can deliver,” she said.
“The worrying effect of higher mortgage payments is that people have less disposable income to spend at a time when household finances may already be stretched thin.”
Shop around
If you are looking for a new mortgage deal and want to get the best price – it’s vital you investigate as many options as possible, something a broker should be able to help you with. In fact, despite rising rates, there are still some attractive deals.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “Not all mortgages are rising as quickly as the Bank of England base rate, because the big banks are still sitting on so much lockdown savings that they can afford to fund cheaper deals, so it’s well worth shopping around.”
