Bank of England increases base rate to 3.5% – what the rise means for your mortgage and savings

It's the ninth time in a year that the Bank has increased rates after it first lifted them to 0.25% from 0.1% in December 2021.

The hike follows a drop in inflation to 10.7% in the 12 months to November 2022, down from 11.1% in October. The Bank of England currently predicts that inflation will continue to fall gradually over the first half of 2023.

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, we've included responses from mortgage providers below. 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 £27 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 as interest rates on fixed mortgages have shot up dramatically over the past 12 months. 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 – though currently many tracker mortgage rates are far cheaper than fixes. Also check if there are penalties to leave your current deal now – many trackers do have them.

  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. If not, then you're free to switch to another mortgage. Our Ditch your mortgage? calculator can help you decide, plus our MSE News story on what's in store for mortgages in 2023.

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 – though some high-street banks can be slow to pass increases on to customers, and new best-buy deals don't always emerge straightaway. We'll ask all the main providers what their plans are, and here's what we know so far:

• Co-op Bank will increase rates on all savings accounts by 0.5 percentage points from 26 January 2023.

• Coventry Building Society will increase rates from 6 January 2023 – with its regular savings account paying 4% and easy-access savings account paying a minimum of 2%.

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 2.86% on easy access. Zopa offers the highest rate of 2.86% on up to £85,000, and it allows you to open it with a minimum of £1 – however, it is app-only so bear this in mind. For an online account, Coventry Building Society pays a smidgeon less at 2.85%, though limits you to six penalty-free withdrawals a year.

• Up to 4.25% on a one-year fix. Three providers pay the top rate of 4.25%, including app-only Atom Bank, opened with a minimum of £50, and online bank Cahoot, which can be opened with a minimum of £500. National Bank of Egypt UK also pays 4.25%, though you must apply via the savings marketplace Raisin. 

• Up to 4.55% on a two-year fix. Secure Trust Bank offers the top two-year rate of 4.55% and is a straightforward online account, opened with a minimum of £1,000. There's also Hampshire Trust Bank's 4.5% 18-month account, which is a good middle ground between a one- and two-year fix.