Following the latest base rate review held by the Monetary Policy Committee (MPC), interest rates have been increased to 4%. With a 0.25% rise from the previous rate of 3.75%, this is the Bank of England’s (BoE) first interest rate increase since August 2023.
What affected the decision at the base rate review?
Interest rates had gradually started to be reduced in August 2024 from 5.25% to 3.75% in December 2025. However, the conflict in the Middle East disrupted oil and gas supplies, which has caused persistent energy cost pressures. Inflation has risen as a result, hitting 3.5% in the year to September.
The Bank of England has to maintain a fine line between keeping inflation under control and ensuring that higher borrowing costs don’t put too much pressure on households, businesses and the wider economy. With the inflation rate moving further away from the BoE’s target of 2%, the MPC’s vote to increase the base rate to 4% was widely anticipated.
The Middle East conflict isn’t the only reason that a decision was made to increase the base rate. During the Autumn Budget, it was announced that the minimum wage will be increased, adding to staffing costs for businesses. Some businesses may pass these additional costs on to customers through higher prices, while others may reduce their workforce to manage their expenses. Any resulting price increases could put further upward pressure on inflation.
What does the base rate increase mean for mortgages?
As the base rate has now been increased, tracker mortgage rates and those for standard variable rate mortgages will increase. This means your monthly payments will go up if you have this type of mortgage.
The prices of fixed rate mortgage products had already begun to rise, with average 5-year rates hitting 6% in October. This was because swap rates had already accounted for the likelihood of a rate increase in November. If you’ve been looking for a new fixed-rate deal and comparing the rates, you may have noticed the recent increases.
If you’ve got an existing fixed-rate mortgage, your current rate won’t be affected by the base rate hike. You’ll continue to pay the same amount until your current deal ends. However, inflation is expected to continue rising and further interest rate increases are expected next year as a result. This will keep borrowing rates elevated.
Therefore, should your deal be coming to an end within the next 6 months, it’s a good idea to lock in a new deal now. That reduces your risk of paying an even higher rate if you leave your search until a later date and interest rates continue to rise in the meantime.
Get expert advice after the latest base rate review
Whether you’re a prospective buyer and uncertain about your affordability in the current climate or you already have a deal and are concerned about increasing interest rates, our mortgage brokers are here to help you. Give us a call on 01322 907 000 to speak with one of our experts.
They can discuss your current financial position, compare the options available and give you impartial advice so that you’re better placed to make the right decision for your needs.