The Bank of England’s Monetary Policy Committee has voted by a majority of seven to two to increase the Base Rate from 4.25% to 4.5%.

This is its highest level since 2008 and the 12th rate rise in a row.

Adrian Anderson, director of Anderson Harris, said: “The never-ending story of interest rate rises continues today with the Bank of England’s decision to set rates at 4.5%, resulting in yet another blow to borrowers.

“High interest rates, and in turn, high mortgage rates, seem to be hanging around for longer than maybe many expected and with 1.4 million households on fixed-rate deals ending this year, concerns over an increase in payment defaults in the future is very real.”

Impact on borrowers

The Base Rate affects some mortgage and savings rates.

Variable rate mortgage borrowers will likely see their pay rate rise in the next few weeks.

This includes tracker rate borrowers, who will see the full increase passed on, as well as discounted variable rate and standard variable rate borrowers (who will see an increase at the discretion of their lender).

According to Moneyfacts, the average standard variable rate is currently 7.37% compared to just 4.78% a year ago. It added that a rate rise of 0.25 percentage points adds approximately £780 onto total repayments over two years (based on a £200,000 mortgage over 25 years).

How does it affect fixed rate borrowers?

Those currently on a fixed rate mortgage will see no change for the duration of their current deal.

But the problems arise when their current deal expires and they need to remortgage.

That’s because new mortgage rates are much higher than they were when borrowers last took out a deal, so they are likely to face sharp payment shock as their monthly payments increase.

The average two-year fixed rate is currently 5.26%, said Moneyfacts, compared to 3.03% a year ago and 2.57% two years ago.

Rachel Springall, finance expert at the financial information provider, said: “The latest base rate rise will be disappointing news for borrowers who have been unable to refinance onto a fixed rate mortgage, yet another blow to their monthly outgoings amid a cost of living crisis.

“Those aiming to lock into a fixed rate mortgage for peace of mind will find average rates have come down slightly over the past month, but as rates average around 5%, this may still be unaffordable for some.”