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BOE: Interest rate rise again for third month in a row

The Bank of England has raised interest rates, for a 10th consecutive time, by 0.5 percentage points to 4%.

Thursday’s move is yet more bad news for the approximately 2.2 million people on a variable rate mortgage, who are also grappling with higher fuel and energy bills. Many now face paying hundreds of pounds extra a year.

About half of those 2.2 million are either on a base interest rate tracker or discounted-rate deal. The other half are paying their lender’s standard variable rate (SVR).

A tracker directly follows the base rate, so your payments will almost certainly soon reflect the full rise. On a tracker now at 4.5%, the interest rate would rise to 5%, adding £41 a month to a £150,000 repayment mortgage with 20 years remaining. The monthly payment on such a mortgage would rise from £949 to £990.

Of course, the numbers will be more significant for those with bigger mortgages. On a £500,000 mortgage, the monthly payment will rise by £139 to £3,301.

SVRs change at the lender’s discretion, and most will go up, though not necessarily by the total 0.5 points. Some lenders may take some time to announce their plans. The average SVR rate is 6.84%, according to Moneyfacts.

However, about 6.3m UK mortgages (three-quarters of the total) are fixed-rate loans. These borrowers are insulated until their deals expire – but for many, that will soon be 52,000 expiring in February and March.

The past few months have been a stressful and costly time for anyone looking for a mortgage deal, whether it is to buy their first property or to replace a deal that is ending.

Home loans were already getting dearer after a run of Bank of England interest rate rises in 2022. But about 1,700 deals were withdrawn amid the financial shock caused by Kwasi Kwarteng’s disastrous mini-budget in September, which sent the average two- and five-year fixed mortgage rates up sharply, from 4.74% and 4.75%, respectively, to peak at 6.65% and 6.51% in October.

Since then, lenders have started competing for customs again, and rates have declined. The average new two-year fixed rate stood at 5.44% on Thursday, according to data provider Moneyfacts and 5.2% for a five-year fix. The top rate tables indicate there are cheaper deals out there, including some starting with a 4.

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