The Bank of England has raised the base rate by 0.25 percentage points to 4%, the first increase in more than three years, adding an average of £30.72 a month to tracker mortgage payments.
The rise, confirmed on Thursday, took the base rate from 3.75% to 4%. According to UK Finance, 510,000 outstanding homeowner mortgages are trackers, making up around 6% of the total. Based on typical outstanding mortgage balances, the increase for those on tracker deals will be £30.72 on average.
Impact on variable and fixed rates
A total of 470,000 deals are on standard variable rates (SVRs), which homeowners may end up on when their initial deal ends. SVRs are set by individual lenders. If the lender passes on the 0.25 percentage point increase in full, the average homeowner on an SVR will see monthly payments rise by £14.28.
Around nine in 10 (87%) outstanding homeowner mortgages are fixed rates. While people on fixed-rate mortgages will not feel the immediate impact of the base rate hike, many homeowners will have to consider their options in the months ahead. Around 700,000 fixed-rate mortgages are expiring at some point in the second half of this year, with a further 2.3 million fixed-rate deals due to expire in 2027, according to UK Finance analysis.
Industry reaction and advice
Andrew Montlake, chief executive of Coreco mortgage brokers, said: "For households, this is another turn of the financial screw. Tracker borrowers will see payments rise almost immediately, while those coming off fixed deals face a mortgage market already repriced for higher rates."
Richard Donnell, executive director at Zoopla, said: "Higher mortgage rates have been a drag on housing market activity since the spring, with sales agreed down 8% on last year and this latest increase in the base rate set to make more buyers pause and wait on their home buying decisions."
Emily Williams, director of research at Savills, said: "House price growth is forecast to accelerate to 5.0% in both 2029 and 2030." Simon Gammon, managing partner at Knight Frank Finance, said: "The Bank of England may be raising rates, but global events will exert the most influence on UK mortgage rates over the coming months."
Impact on savers and businesses
Frances Haque, chief economist at Santander UK, said: "The key question is whether today's decision is a precautionary move or the start of further increases. With energy prices facing further increases, inflation expectations rising and wage growth stagnating at levels above those consistent with the 2% target, it certainly looks as if further hikes will feature in 2027."
For savers, Jenny Holt, customer savings and investment director at Standard Life, said: "For savers, higher interest rates could bring better returns on cash, although banks won't necessarily pass on the full increase." Rachel Springall, a finance expert at Moneyfactscompare.co.uk, said: "Savers must make time to review their old accounts." Sarah Pennells, a consumer finance specialist at Royal London, said: "Higher rates can be good news for savers, but it's important to check whether your savings rate has increased and by how much."
Gaurav Shukla, CEO at Marlow-based Home Me Mortgages, said: "The increase will be felt differently across households and businesses. Tracker mortgage holders will see their payments rise, while those on fixed rates won't be immediately affected." Dave Huggett, founder of Lucid Foreign Exchange, said: "For borrowers, anyone on a tracker or coming off a fixed deal feels this first, and we'd say check what your lender will charge before your renewal date and not after it."
Malcolm Davidson, director of Hull-based UK Moneyman, said: "Prospective home buyers ought not to be put off by this news. The market has long expected this increase and the fixed rate mortgage rates already reflected it in advance - in fact, we have seen some lenders actually reduce their rates this week."
