The Bank of England’s Monetary Policy Committee has voted by a majority of seven to two to increase the Base Rate from 4% to 4.25%.

This is its highest level since late 2008 and the 11th rate rise in a row.

The increase follows this week’s unexpected rise in the rate of inflation to 10.4%.

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).

Group chairman of Cornerstone Tax, David Hannah, said: “In the short term, today’s announcement from the Bank of England to increase interest rates by 0.25 percentage points to 4.25% will have a detrimental impact on those who are currently on variable mortgages, and it may lead to people running into genuine financial difficulty.”

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.

Nathan Emerson, chief executive for Propertymark, said: “With interest rates again rising, we of course expect to see challenges within the market. For some current homeowners, the cost to remortgage will mean finding an extra £200 to £300 a month on average, whereas for many of those entering the property market, they will need to re-imagine their budgets and adjust their affordability.”

Despite this, average fixed rates have actually fallen to their lowest level in six months, according to Moneyfacts.

So things aren’t as bad as they were at the back end of 2022, but this will provide cold comfort for those looking to take out a new mortgage or remortgage right now.