The Bank’s Monetary Policy Committee (MPC) voted by a 7-2 majority to raise interest rates by 0.5 percentage points from 4.5 per cent to 5 per cent. Two members preferred to maintain bank rate at 4.5 per cent.
Those voting for the proposal were Governor Andrew Bailey, Ben Broadbent, Jon Cunliffe, Jonathan Haskel, Catherine L Mann, Huw Pill and Dave Ramsden. Meanwhile, Swati Dhingra and Silvana Tenreyro, both of whom have been vocal in their opposition to more rises, voted against the proposition.
This is now the 13th base rate rise since the Bank started its hiking cycle in December 2021 from the historic 0.1 per cent low in a bid to curb inflation which has stuck at 8.7 per cent in the year to May. The base rate was last at 5 per cent in April 2008.
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, although rate hike was already largely priced in so savers are told not to expect a big leap in these rates.
Chancellor Jeremy Hunt backed the latets increase.
He said: “High inflation is a destabilising force eating into pay cheques and slowing growth. Core inflation is higher in 14 EU countries and interest rates are rising around the world, but the lesson from other countries is that if you stick to your guns, you bring inflation down.
“Our resolve to do this is watertight because it is the only long-term way to relieve pressure on families with mortgages. If we don’t act now, it will be worse later”.
Full impact on variable rate mortgage holders
Borrowers on a variable rate mortgage – an estimated 1.41 million borrowers as 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 in November 2021 before the series of rate hikes) with a 75 per cent loan-to-value ratio, monthly mortgage payments will increase by £64. Given the thirteen rate hikes, this means these homeowners will be forking out an extra £561 each month compared to the low-rate environment seen back in November 2021 ahead of the onslaught of rate hikes.
For these homeowners in London, based on the average property value of £519,934 back then, they would see an extra £122 added to monthly bills. Overall, they will be paying an additional £1,078 a month compared to 2021.
Meanwhile, 1.4 million households will be in for a bill shock when their current deal comes to an end. Half of this number were previously on a mortgage deal below 2 per cent, while now a two-year deal has breached 6 per cent.
While lenders have been urged to show forbearance for struggling borrowers, chancellor Jeremy Hunt has ruled out introducing a mortgage relief scheme at source saying that it could fuel further inflation.
However, MoneySavingExpert.com founder, Martin Lewis, had an urgent private meeting on mortgages with the Chancellor yesterday, and a separate conversation with shadow chancellor Rachel Reeves.
