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The Bank of England has raised its base rate from 3.75% to 4%, potentially lifting payments for some borrowers while improving savings returns. The effects vary by mortgage type, and higher borrowing costs may also influence businesses’ hiring and investment.
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The Bank of England has raised its base rate from 3.75% to 4% for the first time in more than three years, a move that could increase payments for some borrowers while improving returns for savers. The BBC’s guide also warns that higher borrowing costs may affect businesses’ decisions on hiring and investment.
The effects will depend on people’s circumstances. Around 500,000 homeowners have tracker mortgages that follow the Bank rate; a typical borrower on one could pay about £31 more a month. A further 500,000 on standard variable rates will have to wait to see whether their lender passes on the rise. If it does, the BBC estimates a typical increase of £14 a month for a 0.25 percentage-point rise.
Most mortgage holders — 87%, according to the BBC — have fixed-rate deals, so their current payments will not change until their deal ends. But people looking for a new mortgage or remortgaging may face higher rates: average two-year and five-year fixed deals stood at 5.97% and 5.99% respectively on 5 November, according to Moneyfacts figures shown by the BBC.
Higher rates can also mean better returns on savings, although savers may need to compare accounts to find competitive deals. Moneyfacts’ Rachel Springall said people who had left £20,000 in closed savings accounts had missed out on an extra £139 over three years compared with accounts still on sale. She said fixed-term savings deals usually offer better returns, but locking money away means it is less accessible.
Renters could also be affected if landlords’ costs rise and are passed on. For businesses, more expensive borrowing and customers with less money to spend may constrain investment and sales. Ryse 3D chief executive Mitchell Barnes said higher rates could lead firms to use more automation instead of hiring workers.
The rise does not affect everyone in the same way: borrowers with variable rates may see costs increase, while savers may benefit. People on fixed mortgages are protected for now, but their costs may change when they arrange their next deal.
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