The Bank of England raised its base rate by 0.25 percentage points on Thursday, bringing it to 4%. This marks the first increase in more than three years, and it will impact homeowners with tracker mortgages the most. According to UK Finance, those on tracker deals will see their monthly payments rise by an average of £30.72. Around 510,000 homeowner mortgages are trackers, making up about 6% of the total.
Homeowners on standard variable rates (SVRs) could also face higher payments if lenders pass on the full rate increase. The average SVR borrower might see their monthly payments increase by £14.28. While fixed-rate mortgage holders won’t feel the immediate impact, many will need to consider their options as around 700,000 fixed-rate deals are set to expire in the second half of this year, with another 2.3 million due to expire in 2027.
Experts advise homeowners to start planning early if their mortgage deal is ending. Andrew Montlake of Coreco mortgage brokers emphasized the importance of understanding options and avoiding panic. Richard Donnell of Zoopla noted that higher mortgage rates have already slowed housing market activity, with sales down 8% compared to last year. He advised sellers to price their homes carefully to attract serious buyers.
For savers, the rate hike could bring better returns on cash, though banks may not pass on the full increase. Jenny Holt of Standard Life encouraged savers to review their accounts and shop around for more competitive rates. Meanwhile, some retirees may see an income boost from higher annuity rates, according to Sarah Coles of AJ Bell.