Base rate rises to 4%, heaping £50 extra to monthly mortgage bills
The Bank’s Monetary Policy Committee (MPC) voted by a 7-2 majority to raise interest rates by 0.5 percentage points from 3.5% to 4% as it tries to curb inflation which stood at 10.5% in the year to December.
The base rate is now at its highest level since the 2008 financial crisis and has risen 10 times in a row from its historic low of 0.1% in December 2021.
This latest rise is likely to feed into mortgage costs, which have already risen substantially over the past year.
Anyone on a variable rate mortgage can expect to see a near instant increase to monthly payments, while anyone coming off a fix in the coming months will be met with higher rates when remortgaging.
For the average UK property costing £270,708 with 75% loan-to-value, monthly mortgage payments will likely increase by £52 for the two million homeowners without a fixed rate deal, according to calculations by TotallyMoney and Moneycomms.
Since December 2021 when interest rates started rising, this means homeowners on variable rate mortgages are forking out an extra £430 each month.
However, the rates are likely to go higher. Andrew Hagger, personal finance expert at Moneycomms, said: “This tenth successive rate hike is unlikely to be the last in 2023 and will inflict further financial pain on borrowers – many of whom are already on their knees and simply unable to absorb any further cost increases.”
The Bank of England previously revealed that around four million homeowner-occupied mortgages are expected to increase over the next year, while regulator, the Financial Conduct Authority stated more than 750,000 households are at risk of mortgage default as interest rates continue to rise.
Alastair Douglas, CEO of credit app, TotallyMoney, said: “If you’re one of the 750,000 homeowners at risk of defaulting on your mortgage in the next two years you must contact your lender as soon as possible. The Financial Conduct Authority recently instructed firms to support borrowers with measures which included allowing customers to make lower repayments, switch to interest-only, or moving to a different rate.
“Missing a payment could impact your ability to access credit for years to come. Not just for big ticket items like loans and mortgages, but also for things like mobile phone contracts and car insurance. Lenders usually check a customer’s credit report during the application process, and the best deals are reserved for those with the best scores.”
Related: Five options if you’re struggling with your mortgage bills