Bank of England increases base rate to 5% - here's how it impacts your mortgage and savings

It's the thirteenth time the central bank has raised rates in the past 18 months after it first lifted them to 0.25% from 0.1% in December 2021.

The hike comes as the Consumer Prices Index measure of inflation remained unchanged in the year to May at 8.7%. Despite this, the Bank of England still expects inflation to fall throughout the year, reflecting an anticipated drop in energy prices.

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 lender-by-lender analysis from all the major providers. Similarly, if you're a saver, we've included what's happening to savings rates.

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

Martin: 'This is causing huge pain to many'

MoneySavingExpert.com founder Martin shared his instant reaction to the base rate rise on Twitter, as you can see in the tweets below.

However, since then, the UK's biggest mortgage lenders have agreed to introduce a new set of measures for struggling borrowers, including allowing homeowners to increase their mortgage term or switch to interest-only repayments temporarily without any impact to their credit rating. 

The support was announced following a meeting between Martin and the Chancellor Jeremy Hunt earlier this month, during which Martin reiterated why banks should come to the public's aid. For more information on what the support means in reality, read Martin's Mortgage 'forbearance' changes blog.

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. As the name suggests, rates – and the amount you pay – WON'T change during the fixed period. Though this also means you're locked in if interest rates come down.

• 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, a typical SVR is 7.99% 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 7% and the rate is SVR minus one percentage point, it's 6%.

• 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 £29 increase in your monthly payments on a £100,000 mortgage.

Lender-by-lender analysis of what's happening to mortgage rates

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 want price certainty and 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 you're 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 should 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. Here's what we know so far:

• Santander will increase rates for all products linked to the base rate - Rate for Life and Good for Life - by 0.5 percentage points. We're checking exactly when and will update this story when we hear back.

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.

Savings rates have yet to factor in the latest rise - but here are the current best buys in the meantime

Savings rates have yet to rise off the back of the latest base rate announcement, so it may be worth waiting a few more days to see if best-buy rates improve before switching.

If you don't want to wait, these are our current top picks (as at Thursday 29 June), but they could change at any time. For a full round-up, see our daily-updated Top savings guide:

• Up to 4.3% on easy access. Newcastle Building Society is offering 4.3%. It can be opened online or in branch with just £1 and allows unlimited withdrawals, which is good if you know you'll need to dip into your savings often.

• Up to 5.9% on a one-year fix. Vanquis Bank offers the top rate one-year fixed rate of 5.9% (minimum £1,000) and pays interest monthly or at maturity.

• Up to 5.9% on a two-year fix. Vanquis Bank, again, pays the top two-year rate at 5.9% (minimum £1,000) with interest paid monthly, annually or at maturity.