The Bank of England has raised the base interest rate for the first time in three years to 0.25%.
Having previously reached an historic low of 0.1% in March 2020 in response to the Coronavirus pandemic, the Monetary Policy Committee voted 8-1 to increase the base rate to combat rising costs.
Wholesale gas prices continue to push up energy costs and have contributed to the rate of inflation reaching its highest level for a decade at 5.1%.
Many had speculated that the bank would increase interest rates last month, and maintain them this month given the emergence of the new Omicron variant of COVID-19.
But the Bank said of the increase: “We have a target of keeping the rate of inflation at 2%. It’s higher than that at the moment. This higher rate of inflation is largely due to the effects of the COVID pandemic on the economy. Many of the things that are causing it won’t last.”
“The main tool we have to influence inflation is interest rates. We have raised the UK’s most important interest rate (Bank Rate) from 0.1% to 0.25%. Doing this will help bring the rate of inflation down.”
“It will take time to work. We expect the rate of inflation to reach around 6% in the spring. But increasing interest rates now will help make sure inflation falls back to our 2% target by the end of 2023.”
What impact does this news have on mortgage rates?
Generally speaking there are two types of mortgages – fixed and tracker. Fixed mortgages have their interest rates locked in for a set period so are unaffected by base rate changes.
But tracker mortgages are heavily impacted by this news. Some lenders such as NatWest, RBS and Leeds Building Society have already confirmed increases to their Tracker Mortgages with many others to follow suit in the coming months.
Those who are on their lender’s Standard Variable Rate (SVR) are also affected, with this rate being used once a promotional or fixed period has come to an end. Big names such as Barclays and Halifax have confirmed their SVR will increase in the New Year.
So if you have, or soon will, come to the end of a fixed term mortgage you are at risk of seeing your monthly payments increase very soon. The same is true of anyone on a tracker mortgage, where the interest rate applied rises and falls in line with the base rate.
This news may sound scary but do not panic, we are here to help.
Just get in touch using the button below and one of our qualified advisors will be in touch. They’ll search a wide range of providers across the market and find a deal that is right for both you and your budget.
The sooner you start the process the more you can reduce any possible impact of rising costs, particularly at a time when the cost of living is so high.
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