The Bank’s Monetary Policy Committee (MPC) voted by a 7-2 majority to raise interest rates by 0.25 percentage points from 4.25 per cent to 4.5 per cent as it tries to curb inflation which climbed to 10.1 per cent in the year to March.
Two members preferred to maintain bank rate at 4.25 per cent. At its latest forecast, the Bank expects to raise the rate once more and hold at 4.75 per cent until the end of the year. It also expects inflation will drop back to 5 per cent by the end of 2023.
However, the latest rise means the figure stands at its highest level since October 2008 amid the financial crisis. It has also risen 12 times in a row from the historic low of 0.1 per cent in December 2021.
Mortgage holders take the hit
This latest rise is likely to feed into higher mortgage costs for the hundreds of thousands of homeowners on variable rates, while for savers, the assumption is that it’s good news. But the rate hike was already largely priced in so a leap in these rates is unlikely to materialise.
For those with debt and credit cards, it could mean higher rates, making it more expensive to pay back any money borrowed.
Full impact on variable rate mortgage holders
Anyone on a variable rate mortgage – an estimated 1.41 million borrowers at December 2022, according to UK Finance – can expect to see a near instant increase to monthly payments on tracker and Standard Variable Rate mortgages.
Calculations by TotallyMoney and Moneycomms revealed that based on the average UK property (£270,708) with 75 per cent loan-to-value (LTV), monthly mortgage payments will increase by £26.
While this sum may seem small, given the 12 back-to-back rate hikes, it means these homeowners will be forking out an extra £482 each month compared to the low rate environment seen back in December 2021 before the continuous hikes.
Other calculations revealed that those with a £250,000 mortgage, will see a £30 a month rise, while those with a £400,000 mortgage will see around £50 a month lumped onto payments.
Costs up, income down
At the same time, household incomes are expected to have fallen by 10 per cent, according to the City watchdog, the Financial Conduct Authority (FCA).
Those currently on a mortgage fix are protected from the rate hikes for the duration of their deal. But anyone coming off a fix in the coming months will be met with much higher rates when remortgaging.
According to the FCA, 5.2 million mortgages will have been exposed to changes in interest rates between July 2022 and June 2024.
The regulator also warned that an estimated 356,000 mortgage borrowers may face payment difficulties by mid-2024, with those coming off a fixed deal likely to fork out an extra £340 a month.
According to data from Moneyfactscompare, the average Standard Variable Rate mortgage stands at 7.37 per cent, having risen from 7.3 per cent just last month and from 4.78 per cent this time last year.
Meanwhile, the average two-year fixed rate mortgage stands at 5.26 per cent, five-year deals are at 4.97 per cent, while 10-year mortgages are at an average 5 per cent.