Bank of England increases base rate to 1.25% – what the rise means for your mortgage and savings

The rise follows predictions from the Bank of England that inflation could hit around 10% or even higher later in the year, although it did also predict rates would eventually start to fall back by next year. Inflation stood at 9% in the 12 months to April 2022, according to the most recent figures from the Office for National Statistics.

The increase means it is the fifth time in quick succession that the central bank has increased rates after it first lifted them to 0.25% from 0.1% in December last year.

Base rate rises will affect most mortgages unless they're fixed. If you have a mortgage and want to check what your bank or building society is doing in response to the rise, see our table below for more on what your provider is doing. Similarly, if you're a saver and want to check the rates, we'll be adding those in as they come too. 

I have a mortgage. What happens now?

The vast majority of mortgage holders in the UK have a fixed-rate mortgage, so for most, nothing will change. The key points for mortgage holders are:

• Fixes are fixed. But sort a new deal soon if yours is coming to an end. As the name suggests, rates – and the amount you pay – WON'T change during the fixed period.

• Lenders MAY raise standard variable rate (SVR) or 'discount' mortgages. These move at the whim of lenders. You'll usually be on an SVR after your fix or tracker ends. A 'discount' mortgage, meanwhile, follows the SVR at a set rate, for example, if the SVR is 4% and the rate is SVR minus one percentage point, it's 3%.

• On a tracker mortgage? Rates will increase. As the name suggests, these 'track' the base rate, so mortgage costs will go up. In general, this latest rise means about a £12 increase in your monthly payments on a £100,000 mortgage.

What should I do with my mortgage?

What you should do depends on what sort of mortgage you have now and whether you're close to the end of your initial mortgage term:

• If you're on a fixed rate. Nothing will change with your existing deal, however, any new deal you remortgage to in future may now be more expensive. If you're close to the end of your current term, you might want to search for a new mortgage deal now. You can usually lock in a mortgage offer three to six months ahead of time.

  If you've six months or longer to go on your fix, you'll either need to wait for your initial deal term to run out, or pay the charge to leave early. Our Ditch your mortgage? calculator can help you decide.

• If you're on a standard variable rate (SVR) or 'discount' mortgage. If you're on the SVR, you're free to remortgage to a new deal at any time. It's worth checking if you can as SVRs tend to be pricey.

  If you're on a discount mortgage that has gone up, you may be able to remortgage without penalty, but do check. If not, you'll either need to wait for your initial deal term to run out, or pay the charge to leave early. Again, our Ditch your mortgage? calculator can help you decide.

• If you're on a tracker mortgage. If you're concerned about this rise, or further rate rises, check now to see if you can switch to a better deal. However, do check if there are penalties to leave your current deal now – many trackers do have them. If not, then you're free to switch to another mortgage.

  If you do have early repayment charges, you'll either need to wait for your initial deal term to run out, or pay the charge to leave early. Our Ditch your mortgage? calculator can help you decide.

If looking for a new deal, see our Remortgage guide or First-time buyers' guide for help, plus our Mortgage Best Buys comparison tool for the top deals. And if you're in need of a mortgage broker, visit our Cheap mortgages guide for the full breakdown.

I'm a saver. What happens now?

The base rate increase could affect all types of savings accounts. In general, savers benefit from base rate rises – although most savings rates are still relatively poor and rates didn't go up much after the last rise. We've asked all the main providers what their plans are and only the following have come back to us so far:  

• Coventry BS will increase rates from 1 July. We've asked by how much and will update when we know more.

• Leeds BS will increase savings rates by up to 0.25 percentage points from 1 July. 

• Santander will increase rates on its Rate for Life and Good for Life accounts by 0.25 percentage points from 4 July. 

• Yorkshire BS will increase rates by up to 0.6 percentage points from 10 July.

Savers should wait a few days before switching

Whatever rate you're on currently, it may be worth waiting a few days to see if best-buy rates improve before switching. These are our current top picks, but they could change at any time. For a full round-up, see our daily-updated Top savings guide:

• Up to 1.56% on easy access. Virgin Money's M Plus is offering 1.56% on up to £25,000 (0.75% above). The main current account also pays 2.02%, but only on up to £1,000. 

• Up to 2.6% on a one-year fix. Atom Bank pays the top rate of 2.6% (min £50), though you'll need to open it via its app. If that's not for you, take a look at Cynergy Bank's 2.57% account which you can open online with £10,000 or more.

• Up to 2.91% on a two-year fix. SmartSave pays the top two-year fixed rate of 2.91% (min £10,000), or if you've less to save, both app-only Atom Bank (min £50) and Castle Trust Bank (min £1,000) pay only a smidgeon less at 2.9%.