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Bank of England increases base rate to 4.25% – what the rise means for your mortgage and savings

The Bank of England has increased the base rate from 4% to 4.25%. This rate is used by the central bank to charge other banks and lenders when they borrow money – and so it influences what borrowers pay and what savers earn.

It's the eleventh time in over 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 surprise spike in the Consumer Prices Index measure of inflation to 10.4% in the 12 months to February 2023, up from 10.1% in January. The Bank of England had initially predicted that inflation would gradually fall in 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'll be updating this story with a lender-by-lender analysis for new rates. Similarly, if you're a saver, we've included what's likely to happen to your savings rates.

See our Mortgages & Homes and Savings hubs for guides, calculators and more.

Some lenders have cut the cost of fixed-rate mortgages

Despite last week's base rate increase, a number of major mortgage lenders have actually cut the cost of their fixed-rate mortgages, including Barclays and HSBC.

That's because fixed-deals, unlike variable mortgages, are influenced more by factors like gilt yields and swap rates, which take into account longer-term interest rate predictions. Recently these have been affected by instability in the banking sector, which has allowed some lenders room to drop rates.

On Monday, HSBC announced it was slashing fixed-rate mortgages across most loan-to-value (LTV) bands, while on Tuesday Barclays did the same – including by launching a two-year fix at 4.10% (60% LTV), down from 4.5%. Two-year fixes at sub-4% have not been available since early October 2022, and this 4.10% fix is one of the closest times the 4% threshold has been breached in the interim.

However, the current instability in the financial market means it's difficult to predict what will happen to mortgage rates in the coming months – a view shared by many brokers – so if you're shopping around it could be better for you to grab a good rate while you can instead of holding out.

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. Currently, the average SVR is 7.2% and this is likely to rise following today's announcement. 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 £14 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 till you're in the final three to six months of your initial deal, or pay the charge to leave your current mortgage early if you want to switch now.

  • 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. SVRs tend to be pricey, so it's likely you could save by switching your mortgage – do check, and talk to a mortgage broker about your options.

    If you're on a discount mortgage that has gone up, you may be able to remortgage without penalty, but do check. If not, again, you'll either need to wait till you're in the final three to six months of your initial deal, or pay the charge to leave your current mortgage early.

  • 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 existing tracker mortgage rates are far cheaper than today's 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 till you're in the final three to six months of your initial deal, or pay the charge to leave early. If not, then you're free to switch to another mortgage.

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.

There have been some concerns about the stability of the banking sector, following the collapse of Silicon Valley Bank and the uncertainty around the future of Credit Suisse. Remember, if you've saved with an authorised bank in the UK, you benefit from the protection of the Financial Services Compensation Scheme – see our Savings safety guide for full details.

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 (as at Thursday 23 March), but they could change at any time. For a full round-up, see our daily-updated Top savings guide:

  • Up to 3.4% on easy access. App-only Chip currently offers the top rate for easy-access accounts at 3.4% (min £1). If you don't want to save through an app, Cynergy Bank's account pays 3.25% (min £1), can be opened online and allows unlimited withdrawals.
  • Up to 4.43% on a one-year fix. SmartSave currently offers the top rate for one-year fixes at 4.43% (min £10,000). If you've less to save, OakNorth offers a slightly lower 4.42% (min £1).
  • Up to 4.5% on a two-year fix. Cynergy Bank currently offers the top rate for two-year accounts at 4.5% (min £10,000). If you've less to save, OakNorth Bank pays a slightly lower 4.46% (min £1).

More to follow...

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