Millions of homeowners were hit by yet another hike in mortgage bills on Thursday as the Bank of England increased its benchmark interest rate by a quarter of a point to 4.5 per cent.
The Bank’s move - the 12th consecutive rise in the cost of borrowing since December 2021 - lifts its rate to its highest level in more than 14 years.
It will mean an instant increase in mortgage costs for borrowers on tracker or variable mortgages that have rates moving in line with the Bank of England’s decisions.
A London homeowner on a typical two year tracker mortgage of £350,000 will see their monthly repayments go up by £48.60 to £2358.45. Over a year that will add another £600 to bills that have already risen hugely over the past 18 months. The majority of borrowers on fixed rates will be shielded from the impact of the move until they have to remortgage.
The Bank’s Monetary Policy Committee (MPC) said the increase, which had been widely expected in the City, was necessary to bear down on double digit inflation.
MPC members voted 7 to 2 for the hike. The committee also said further increases “would be required” if inflationary pressure persist in the economy.
However, the Bank said there is no threat of a recession this year in the largest upgrade to its GDP projections since it was granted independence in 1997.
But it also revised its inflation forecast so that the rate of price increases only falls back to 5.1% by the end of the year. Rishi Sunak promised to halve the rate of inflation this year when he unveiled his five pledges in January when inflation was 10.1 per cent.
Marcus Brookes, chief investment officer at Quilter Investors: said: “The economic environment does not necessarily paint a picture of recovery yet, and as the last three years have shown, things can change very quickly. Inflation is proving incredibly stubborn and the Monetary Policy Committee won’t want a policy misstep, so for as long as the economy can handle it, higher rates will remain in place until price rises are under control.”
Mike Owens, senior sales trader at investment platform Saxo, said: “This is unwelcome news to millions of households in the UK as borrowing rates have increased significantly in the past year due to interest rate rises. Those on large mortgages or with variable rates will be the most impacted by the rise, with their monthly payments seeing yet another hike.
“Savers, on the other hand, have seen the interest in their savings rise, but not significantly. With inflation still stubbornly at double digits, many will see their savings decrease in value over a period of time.”
Paula Higgins CEO of campaign group HomeOwners Alliance said: “For new mortgage hunters, this latest increase is unlikely to see mortgage rates shoot up any time soon as a result. The market remains competitive and we’re seeing new products coming to the market, not least Skipton’s 100% mortgage - another indicator that lenders are feeling confident.
“But those coming off a cheap fixed-rate mortgage may be in for a shock; fixed mortgage rates average 5.28% for 2 year deals and 5 per cent for 5-year deals.”
