The bank’s monetary policy committee (MPC) raised interest rates by 25 percentage points today to 5.25% as it continues its attempts to curb high inflation. Today’s rate rise is the 14th in a row.
The base rate hasn’t been this high since February 2008, 15-and-a-half years ago. Experts predict the base rate will peak between 5.5% and 5.75% by the end of the year.
Rising interest rates mean bigger borrowing costs – including larger monthly mortgage payments for many homeowners. Those on variable rates will be impacted by the rate rise straight away.
There are an estimated 2 million homeowners on variable rate deals, such as base rate trackers or their lender’s standard variable rate (SVR), who will see an almost immediate rise in their monthly repayments following the latest base rate rise.
John Charcol mortgage technical manager Nicholas Mendes said:
“The most expensive variable rate is an SVR, this is the background rate that the lender charges interest at for those who have moved off a fixed rate and/or an initial term product. Lenders set the SVR themselves which often increases in line with the Bank of England base rate.
“The reason why it’s important to take action to ensure you avoid going onto the lender’s SVR is that the SVR can be set to whatever level they like. For example, to demonstrate the range between lender’s SVRs: Newcastle Building society’s SVR is only 5.94% whereas Virgin Money’s SVR is 8.74%.”
The impact of the rate rise will also be felt by borrowers coming to the end of fixed rate deals and looking to remortgage. Rates were at historic lows on two-year fixes in summer 2021 and the majority of borrowers whose deal is coming to an end in 2023 fixed at below 2%. This means they will be faced with considerably higher monthly mortgage payments when they remortgage.
Royal London consumer finance specialist Sarah Pennells said:
“Someone with a 25-year repayment mortgage with an average outstanding balance of £127,420 would be paying an extra £390 a month, based on the average two-year fixed rate mortgage today, compared to the average two years ago. That’s a massive £9,350 over the two-year term.
“If anyone is worried about their mortgage or struggling, they should contact their mortgage lender or mortgage adviser as soon as possible. There’s a range of measures in place to help mortgage customers, and the earlier you ask for help, the sooner you may be able to access the support.”
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