What the Bank of England’s base rate rise to 1.25% means for you
The Bank of England has voted to raise interest rates by 0.25 percentage points to 1.25% as the UK grapples with high inflation. We look at what that means for your finances.
The increase is only guaranteed to be passed on to borrowers with home loans that have rates explicitly linked to the Bank base rate. These are tracker mortgages, and some lenders’ rates for those who have finished a short-term deal. Santander, for example, has what it calls a follow-on rate for borrowers who have taken out deals since 23 January 2018. This is 3.25 percentage points above the base rate, so will move up to 4.5% after the latest announcement.
A tracker mortgage will directly follow the base rate – the small print of your mortgage will tell you how quickly the rise will be passed on, but next month your payments are likely to go up and the extra cost will fully reflect the base rate rise. On a tracker currently at 2.25%, the interest rate would rise to 2.5%, adding £18 a month to a £150,000 mortgage arranged over 20 years.
On a standard variable rate things are less straightforward – these can change at the lender’s discretion. Leeds building society has already announced it will not pass on the latest increase to borrowers on its SVR, and other mortgage providers could follow. Santander has said that customers on its old SVRs will face an increase at the start of August.
Most borrowers are on fixed-rate mortgages and their repayments will not change immediately. However, when they come to the end of their existing deal they may find they have to pay more for their next loan. The Guild of Property Professionals estimates that 1.5m fixed-rate mortgages will end this year.
According to the financial information firm Moneyfacts, the average
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