Bank of England rate rise to 4%: what it means for mortgages and savings
The quarter-point increase is the first in more than three years, affecting tracker and variable-rate borrowers while most fixed-rate homeowners are temporarily insulated.
At a glance
- The Bank of England raised the base rate by 0.25 percentage points to 4%, its first increase in more than three years.
- UK Finance estimates typical tracker payments will rise by £30.72 a month and typical SVR payments by £14.28.
- The average new mortgage rate is 5.89%, and moving from a 2.59% five-year fix could mean paying about £334 more a month.
The Bank of England raised its base rate by 0.25 percentage points to 4% on Thursday, its first increase in more than three years, in a move that will raise borrowing costs for many UK homeowners while potentially helping savers.
The decision leaves millions of households facing higher mortgage costs, though most borrowers with fixed-rate deals are protected until their current deals end.
Who is affected
Most existing residential mortgages — about 7.3m of nearly 8.5m — are fixed rate, so monthly repayments will not change immediately. The immediate impact falls on roughly 510,000 homeowners with base-rate tracker mortgages. UK Finance estimates a typical tracker customer with £147,000 outstanding will pay £30.72 more a month. Around 470,000 borrowers on their lender's standard variable rate may also pay more, with UK Finance estimating a typical SVR borrower will pay £14.28 extra a month if the rise is passed on fully. Lenders are not obliged to increase SVRs by the full amount.
Remortgaging pressure
New mortgage rates are already high. Moneyfacts said the average new mortgage rate has reached a three-year high of 5.89%, up from 5.83% at the start of October and 4.99% a year earlier. About 2.3m fixed-rate deals end in 2027, plus roughly 200,000 by 31 December. Borrowers moving from a five-year fix taken in early November 2021, when the average rate was 2.59%, to Thursday's average new five-year fix of 5.99% could see monthly payments rise by about £334 on a £175,000 repayment mortgage with 25 years left — around £4,000 a year. Increases for those leaving two-year fixes are expected to be less severe.
There are some positive signs. The rate rise had been anticipated, and major lenders including Halifax, Barclays and Nationwide cut new fixed deal costs earlier this week. Some fixed deals are now below 5%, mainly for borrowers with at least 40% deposit or equity. Nicholas Mendes of broker John Charcol said if the rise is viewed as a one-off precaution, swap rates could ease and lenders could keep cutting fixed rates, but if it signals a series of increases, "the recent improvement in mortgage pricing could stall".
Savings
Savings rates are not directly tied to the base rate, but the increase may benefit savers with easy-access or other non-fixed accounts. Banks may delay decisions or pass on only part of the rise. The average easy-access savings rate was 2.58% on Thursday morning, while best-buy easy-access accounts paid up to 5%, according to Moneyfacts. Best-buy fixed-rate savings accounts paid up to 5.4%. Katie Horne of savings platform Flagstone said banks had already built an expected hike into fixed savings rates for months, adding that a single 0.25% increase is not expected to move fixed rates much further.
Source: The Guardian Business.
Questions and answers
- What does the Bank of England rate rise mean for mortgage holders?
- The base rate rose by 0.25 points to 4%. Around 510,000 tracker borrowers will pay more immediately, and 470,000 SVR borrowers may see higher payments, while most fixed-rate borrowers are unaffected until their deals end.
- Will savings rates rise after the base rate increase?
- Savings rates are not directly tied to the base rate, but easy-access savers may benefit. Banks may delay or pass on only part of the rise; the average easy-access rate was 2.58%, with best-buy accounts up to 5%.
- How much could remortgaging cost after a fixed deal ends?
- Borrowers moving from an average 2.59% five-year fix taken in early November 2021 to a 5.99% new five-year fix could pay about £334 more a month on a £175,000 repayment mortgage, or £4,000 a year.
