How Will the Most Recent Hike in Interest Rates to 1% Impact Your Mortgage?


The Bank of England has, for the fourth time in a row, increased interest rates this week. In a bid to tackle the spiralling inflation rate, the bank has raised rates from 0.75% to 1%. With the cost of living crisis seriously affecting household budgets and causing financial stress for millions of UK citizens, it is critical that the Bank of England find a way to stabilise the economy to prevent inflation from rising even more.

The increase means any homeowners on variable-rate mortgages will see their monthly repayments increase, while those on fixed-rate mortgages will be safe until the end of their fixed period.

The Bank is aiming to bring down the inflation rate, which is currently at 7%, back to its target of 2% by increasing interest rates, which will discourage lending and encourage saving, but experts are warning that by doing this, the Bank is pushing people to their financial limits. Some, however, believe that despite the hike, interest rates are still relatively low.

Personal finance analyst at investing platform Best invest, Alice Haine, said, “While mortgage rates will rise, the cost of borrowing is still historically low, so there’s no need to go into full panic mode yet.

“Yes, most lenders will pass the rate rise onto borrowers, but with interest rates still very much on the low side, the increase in percentage terms is modest.”

She went on to say that with living costs being so high, the pressure was increasing: “This might not have been an issue in a normal economic climate, but in the current cost-of-living crisis, every pound matters as households struggle to balance the books.”

Some experts feel that the Bank of England’s actions will be either a grave mistake or incredibly insightful, depending on what happens over the months to come.

James Andrews, senior personal finance editor at, said, “One thing we can say for certain,” he added, “is that it will do almost nothing to bring down the cost of living for households across the UK, which is being driven by global energy prices and supply chain issues.

“Another thing we can say for certain is that it will make borrowing more expensive at a time when more and more people are being forced into debt to meet rising bills.

“We can also say with some certainty that it will put downward pressure on house prices, making mortgages more expensive at a time when rising essential bills make them less affordable too.”

How does the increase affect your mortgage?

There are approximately 1.1 million homeowners on standard variable rates in the UK and 850,000 people with a tracker, and all of them should expect to see their payments increase.

It is typical for lenders to adjust interest rates accordingly when the Bank of England raises rates, although they are under no obligation to do so. Generally, they do tend to pass on the increase.

Tracker deal clients are expected to see an immediate increase in payments.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Banks will be falling over themselves to pass on the rise to variable-rate mortgage customers before the ink dries on the Bank of England announcement.”

As an example, a homeowner with a 25-year standard variable rate mortgage of £300,000 can expect to see a monthly increase of around £40. The advice is to try to remortgage at a fixed interest rate to protect against any further increases.

How does the interest rate increase affect fixed-rate mortgages?

Essentially, those on fixed rates (approximately 75%) will not be affected. However, many of these deals will come to an end this year, so it is advisable to look around before the end of the period, bearing in mind that mortgage offers are valid for 6 months.

Alice said: “Shopping around now for a deal might also be wise for those on a fixed-rate deal with a 2022 expiry date or those looking to remortgage, as mortgage offers are often valid for a number of months. This will protect them from the effects of further hikes and help to avoid a financial shock.”

Are there any pros to the increase in base rate?

The ones benefiting from the increase are the savers! With the increase in rates, interest on savings will also increase, which is great news for those trying to save up a deposit.

The downside here is that with the inflation rate at a forty-year high, the interest on savings is eroded by the cost of living crisis.