The Bank of England has raised interest rates by 0.25 percentage points to 4 per cent in its latest decision announced today (November 5). The Monetary Policy Committee meets eight times a year to decide what level of Bank Rate is needed to return inflation to the 2 per cent target.
Announcing its decision today, the Bank said that the conflict in the Middle East has 'disrupted the transportation and supply of energy', raising its price and pushing up households’ motor fuel costs and utility bills. With inflation having risen to 3.5 per cent, the Bank expects it to rise even further to about 5 per cent by mid-2027 as higher energy prices have their knock-on effects.
How much could an interest rate hike add to my monthly mortgage bill?
Households on a tracker mortgage will feel the rise quickest as the change will be passed on in full immediately. Based on a mortgage of £232,000, this would add roughly £33 a month, or around £400 a year, according to MoneySuperMarket.
Looking ahead, an estimated 2.3 million mortgage customers have fixed deals expiring in 2027. A typical homeowner in England with a mortgage of around £232,000 (80% LTV) coming off a 3.5 per cent fix would see their monthly payment rise from £1,161 to around £1,540 on a like-for-like deal today, at the 80 per cent LTV median rate of 6.32 per cent. That is roughly £380 more a month, or around £4,550 more a year, says MoneySuperMarket.
The amount homeowners pay will vary depending on the size of their mortgage, their LTV and the deal they choose. But with the energy price cap also forecast to jump by as much as £464 a year to £2,130 in January, many households could be facing higher costs.
What the experts say
Kara Gammell, personal finance expert at MoneySuperMarket, said: "Today’s rate rise will be tough for households already feeling the squeeze from energy bills and everyday costs. If you’re on a tracker or variable mortgage, your repayments are likely to rise almost straight away."
John Fraser-Tucker, Head of Mortgages at Mojo Mortgages, said: "Following months of base rate stability at 3.75%, the Bank of England’s decision to increase the rate to 4% signals a clear shift in policymakers' priorities as persistent inflation forces their hand." He added that "the chances of immediate rate cuts has been put on hold for now" and advised borrowers to look into options early within the six-month lead-up to a deal expiring.
Jake Rowson, sales director at estate agents Ryder & Dutton, said the rise will be "disappointing news for many homeowners and aspiring buyers across Greater Manchester and the North West", but noted that "the market is proving to be remarkably resilient" with "plenty of motivated buyers and sellers".
Rachel Geddes at Mortgage Advice Bureau said the rise was "widely expected, especially with inflation at 3.5% in September". She advised that "if your deal ends in the next six months, today’s decision is a good opportunity to start comparing your options", and recommended talking through circumstances with an expert mortgage adviser.
