The move follows hot on the heels of another half percentage point increase in August, which saw the base rate increase from 1.25% to 1.75%.
The last time the base rate was higher than 2.25% was in November 2008, when it stood at 3%. By March 2009 it had fallen to 0.5% due to the financial crisis at that time.
It is widely expected that there could be further rises to come, even if they revert to the more typical quarter of a percentage point rather than half a percentage point.
Higher rates aim to dampen inflation, which is currently at 9.9% and predicted to peak to 11% in October. Inflation is the increase in the price of the goods and services we buy over time, so prices are currently up by an average of more than 10% compared to last year.
Britain is expected to enter a period of economic downturn at the end of this year, with the Bank of England predicting we will only emerge from recession in 2024.
What the rate rise means for your mortgageSeptember’s rate increase will come as another blow to homeowners on variable rate mortgages, who are likely to have seen their monthly mortgage payments rise several times over recent months. The latest hike means someone paying their lender’s standard variable rate (SVR) with a mortgage of £150,000 will pay an extra £45 a month, or £540 a year, for their mortgage.
If you’re on a fixed rate mortgage deal, you’ll be protected from interest rate rises until the fixed term ends. Bear in mind, however, that when you come to remortgage, you may find that rates have risen considerably since you took out your last mortgage, so you’ll need to work out how you might cover steeper costs.
If you’re on a variable rate mortgage and are worried about rates rising further in coming months, you may want to consider locking into a fixed rate deal. However, check whether there are any early repayment charges to pay to leave your existing deal first, as these may outweigh any savings you might make from remortgaging. If you’re not sure which mortgage deal is best for you, it’s worth seeking professional advice on the various options that may be available to you.