The half of one percentage point hike comes as little surprise, following a BBC interview with Chancellor Jeremy Hunt last week, in which he said that the UK had “no alternative” but to raise rates in a bid to dampen soaring inflation.
Consumer price inflation stood at 8.7% in the 12 months to April, more than four times higher than the government’s 2% target. Raising rates increases the cost of borrowing, which should in turn reduce spending, slowing price rises.
The rate rise follows a week of mortgage mayhem, with many lenders withdrawing and repricing their mortgage deals higher in anticipation of the latest rate increase.
What the rate rise means for youThe latest increase means yet more mortgage misery for those on variable rate mortgages, many of whom may already be finding it hard to manage steeper payments.
People with tracker rate deals will see their payments increase from next month in line with the half point increase, whereas those with other types of variable mortgage will have to wait and see whether their lenders decide to pass on the latest rise in full. You can keep an eye on what your lender is doing by checking out SVR Watch page, which we update as we hear of any changes.
Homeowners who are currently locked into fixed rate deals won’t see any change in their payments following the latest rate rise but should be prepared for often substantially higher payments if their deal is due to finish in the coming months.
Markets expect further rate increases in coming months, with some commentators expecting the base rate to peak at 5.5% or even more. Speaking to ITV, the former governor of the Bank of England Mark Carney said: “The big tectonic shifts in the global economy means that we are likely to have higher longer term interest rates for a period of time.”
Those who are approaching the end of their fixed rate deals may therefore want to act sooner rather than later when it comes to securing their next mortgage deal, as fixed rates could continue to rise for a few months to come. Most lenders will allow you to sign up to a mortgage up to six months before you want it to begin, so you don’t have to wait for your current deal to finish before you start your mortgage search.
If you’re not sure which mortgage to choose, seek professional advice from a broker on the options that might be available to you – they’ll be able to tell you which deals you’re likely to be eligible for.