By: Sarah Williams

For the first time in over three years, the Bank of England has raised interest rates, leaving millions of homeowners facing higher mortgage bills. The previous base rate of 0.1% has been increased to 0.25%. The rise was ordered following reports that the official rate of inflation has risen to 5.1% - a ten year high. The aim of the increase is help control price rises.

Threadneedle Street’s monetary policy committee (MPC) judged that pressure from surging inflation justified the increase despite growing concern for the UK economy due to the Omicron variant. The observed rise in the official rate of inflation to 5.1% is the highest rate since September 2011 and is well above the MPC’s 2% inflation target. The committee voted 8-1 in favour of the increase.

Jack Williams, managing director of Blossomfield mortgages said: ‘It is clear from this unexpected increase that the Bank of England are concerned about getting a grip on rising inflation. For the MPC committee, the risks from inflation rates most definitely outweigh the uncertainty the economy faces from Omicron.’

The rise in interest rates will increase monthly repayments for those with either a tracker or a variable rate mortgage. With over two million borrowers in the UK holding these types of mortgage. Payments are estimated to increase by around £15 a month for tracker customers and £10 a month for customers with a variable rate mortgage. If you are one of the 80% locked onto a fixed rate mortgage, there will be no immediate effect on your monthly payments.

An initial rate hike such as this is usually just the beginning, with the Bank predicted to keep increasing rates until inflation is back under control. If you have a tracker or variable mortgage, the best thing to do is to lock into a fixed rate to protect yourself from future interest rate increases. Get in touch with us now to see how we can help.