By Sohaib Shams
The Bank of England raised its base interest rate to 4% on Thursday, the first increase in more than three years, pushing up mortgage costs for hundreds of thousands of homeowners.
Tracker and Variable Rate Borrowers See Immediate Rises
Homeowners on tracker mortgages, which account for about 510,000 loans or 6% of the total, will see monthly payments rise by an average of £30.72, according to UK Finance. Borrowers on standard variable rates, numbering around 470,000, face an average increase of £14.28 if lenders pass on the full 0.25 percentage point rise.
Fixed-Rate Borrowers Face Future Repricing
Fixed-rate deals make up 87% of outstanding mortgages and are not immediately affected. However, around 700,000 fixed-rate mortgages are due to expire in the second half of 2026, with a further 2.3 million expiring in 2027, leaving those borrowers to refinance at higher rates.
Industry Urges Struggling Borrowers to Seek Help Early
UK Finance encouraged anyone concerned about affordability to contact their lender promptly. Mortgage broker Andrew Montlake warned that tracker borrowers will see payments rise almost immediately, while those coming off fixed deals face a market already priced for higher rates, advising against panic and early planning.
Housing Market Activity Expected to Cool Further
Property experts said higher mortgage rates have already dampened activity, with sales agreed down 8% year-on-year. Richard Donnell of Zoopla noted the latest increase may cause more buyers to pause, while serious buyers remain selective. Agents stressed the importance of realistic pricing to attract active buyers.
Savers Could See Better Returns on Cash
The rate rise may benefit savers, though banks may not pass on the full increase. Easy-access accounts are already offering around 5%, with higher rates available for fixed-term deposits. Experts advised savers to review their accounts and shop around for competitive rates.
Further Rate Hikes Possible in 2027
Economists suggested the Bank of England may continue raising rates in 2027 given persistent inflation pressures. Santander UK's Frances Haque said further hikes look likely, while global events will also influence UK mortgage rates. Homeowners should prepare for borrowing costs to remain elevated.
