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How September’s Bank rate rise affects your mortgage

·3-min read
Unsplash ( )
Unsplash ( )

The Bank of England has hiked interest rates to 2.25% in the seventh consecutive rise since December last year.

The move was widely expected by City forecasters as the Bank’s rate-setting Monetary Policy Committee (MPC) battles rocketing inflation. It measured 9.9% in the 12 months to August, due largely to the high cost of essentials including food, energy and fuel and compares to a target of 2% set by the Government.

What does a rate rise mean for home loans?

All mortgage customers on a variable rate deal, which accounts for around 2.2 million households according to figures from the Financial Conduct Authority (FCA), will be impacted by today’s rise.

Those with home loans linked directly to the Bank rate will see a hike in their monthly payments with immediate effect. The rise will add £62 a month onto the cost of a £250,000 mortgage, or £37 a month onto the cost of a £150,000 mortgage, for example.

Borrowers paying a standard variable rate (SVR) must absorb the rise whenever, and by what proportion, their lender decides to implement it. However, typically lenders pass on interest rate rises in full to SVR costs as soon as the following month’s mortgage payment.

The average SVR is currently 5.4% according to data from, so could reach just under 6% if the full 0.5 percentage point rate rise is passed onto borrowers.

However, SVR mortgages do not tend to lock borrowers into their deal. This means that, circumstances permitting, they are free to leave at any time and remortgage to a better rate. Fixed rate mortgage costs currently start at around 3.25% over two years, or 3.35% over five years, for borrowers with a 25% deposit.

The estimated 6.3 million households currently already on fixed rate mortgages will feel the impact of today’s rate rise, as well as the previous six rises since December last year, when they reach the end of the contracted term. The FCA estimates that, for more than half of these borrowers, this will be within the next two years.

What can borrowers do?

Mortgage customers with less than six months to run on any kind of mortgage deal can start shopping around for a new home loan now. That’s because lenders allow you to lock in a rate up to half a year in advance.

It’s also worth finding out, in pounds and pence, exactly how much the rate rise could affect your monthly payments either now or in the future. The latest round of mortgage rate rises comes on top of other soaring household costs including food, energy bills and fuel.

But the MPC said it will not shy away from further increases in the Bank rate in its bid to return inflation to its 2% target. It said in a statement: “The scale, pace and timing of any further changes in Bank Rate will reflect the Committee’s assessment of the economic outlook and inflationary pressures. Should the outlook suggest more persistent inflationary pressures, including from stronger demand, the Committee will respond forcefully, as necessary.”

The next meeting of the Bank’s Monetary Policy Committee will take place on 3 November.