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How will the UK interest rate hike affect you?

The Bank of England has hiked interest rates by 0.75 percentage points to 3% – the eighth rise since last December and the biggest since 1989. So what does this mean for your finances?

How will it affect mortgage payments?

It will hit many of the roughly 2.2 million people on a variable rate mortgage hard when other costs rise. Many now face paying hundreds of pounds extra a year – and for some with bigger loans, it will be thousands.

About half of that 2.2 million are either on a 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 previously at 3.5%, the interest rate would rise to 4.25%, adding £59 a month to a £150,000 repayment mortgage with 20 years remaining. If that were an interest-only mortgage, it would be an extra £93 a month.

SVRs change at the lender’s discretion, but most will go up, though not necessarily by the full 0.75 points. Some lenders may take some time to announce what they are doing.

However, about 6.3m UK mortgages (three-quarters of the total) are fixed-rate home loans. These borrowers are insulated until their deals expire, but for many, that will be in the next few weeks or months.

And new mortgages?

It’s been – and continues to be – a tough time for anyone looking for a new fixed-rate mortgage, whether to buy their first property or replace a deal coming to an end.

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