Bank of England Hikes Base Rate to 4 Per Cent
First increase in over three years impacts mortgage holders and savers amid rising inflation and global economic pressures.
Sarah Connor
The Bank of England has increased the base rate to 4 per cent.
UK Finance confirmed 510,000 outstanding homeowner mortgages are trackers. These borrowers will see the base rate rise feed directly into their mortgage rates.
Another 470,000 deals sit on standard variable rates (SVRs). Meanwhile, 2.3 million fixed-rate deals are due to expire in 2027, UK Finance claims.
The average five-year fixed mortgage rate currently stands at 5.99 per cent. Mortgage experts believe today's increase will not cause a substantial rise in mortgage rates, as lenders already re-priced deals upwards.
Homeowners nearing the end of a fixed-rate deal can often secure a new mortgage offer up to six months in advance. If the situation changes and rates begin to fall again, abandoning an offer for a new one is normally possible until just before the new mortgage begins.
The Bank of England may be raising rates, but global events will exert the most influence on UK mortgage rates over the coming months.
Simon Gammon stated, "The Bank of England may be raising rates, but global events will exert the most influence on UK mortgage rates over the coming months." Investors bet rates will jump to 4.75 per cent or even 5 per cent by November next year.
Jason Tebb noted, "Serious buyers and sellers continue to engage with each other but with the former having potentially less purchasing power after today’s announcement, the sensible pricing of property coming to market is essential." Nicky Stevenson added that "understanding affordability, securing mortgage advice early and allowing some flexibility in monthly budgets will be particularly important in the current environment."
For savers, higher interest rates could bring better returns on cash. However, banks may not pass on the full increase, Jenny Holt claims, with the majority of easy access accounts paying less than the base rate.
RCI Bank offers the best two-year fixed rate savings account at 5.3 per cent. Trading 212 provides the best one-year fixed-rate cash Isa, paying 4.77 per cent.
Other fixed-rate cash Isa rates range from 5 per cent for one-year fixes to 5.27 per cent for five-year fixes. The annual tax-free allowance for cash Isas is £20,000.
Savers must make time to review their old accounts.
Rachel Springall urged, "Savers must make time to review their old accounts." Frances Haque suggests further hikes will likely feature in 2027, citing energy prices facing further increases, rising inflation expectations, and stagnating wage growth.