The Bank of England has raised its base rate to 4 per cent, marking the first increase in borrowing costs in over three years. This hike from 3.75 per cent will immediately impact homeowners on tracker mortgages, with average monthly payments set to rise by £30.72. Tracker deals account for about 6 per cent of outstanding mortgages, affecting 510,000 homeowners. Additionally, 470,000 borrowers on standard variable rates could see their payments increase by £14.28 if lenders pass on the full 0.25 percentage point rise.
Fixed-rate mortgages, which make up 87 per cent of outstanding homeowner loans, will not feel the immediate impact. However, around 700,000 fixed-rate deals are set to expire in the second half of this year, and another 2.3 million in 2027. Experts advise borrowers to start early in understanding their options as they approach the end of their fixed terms.
The rate increase is expected to further cool the housing market, with sales already down 8 per cent compared to last year. Industry leaders emphasize the importance of careful pricing for sellers and financial planning for buyers. While higher mortgage rates may deter some, serious buyers remain active, albeit more selective.
On a positive note, the rate hike could benefit savers, potentially leading to better returns on cash accounts. Experts recommend reviewing savings rates and exploring more competitive accounts to ensure purchasing power is maintained amid elevated inflation.