Bank of England raises base rate to 4%, pushing up mortgage costs for millions
October 2022 - The Bank of England has increased interest rates from 2.25% to 4%, the highest level since 2008, in a bid to control inflation.
The decision, made by the Bank's Monetary Policy Committee (MPC), will add to the cost of living for millions of homeowners with variable and tracker mortgages.
The base rate is the interest rate at which the Bank of England lends money to commercial banks. When the base rate rises, commercial banks typically pass on the increase to their customers, increasing the cost of borrowing.
Why has the Bank of England raised interest rates?
The Bank of England's primary objective is to keep inflation at 2%. Inflation is currently at 10.1%, the highest level in 40 years, and the Bank of England is concerned that it will continue to rise.
Raising interest rates makes it more expensive for people to borrow money, which reduces demand in the economy. This, in turn, helps to reduce inflation.
What does the interest rate rise mean for homeowners?
For homeowners with variable or tracker mortgages, the interest rate rise will mean an increase in their monthly mortgage payments.
For example, a homeowner with a £100,000 mortgage on a variable rate of 2.5% will see their monthly payments increase by £25.48.
Homeowners with fixed-rate mortgages will not be immediately affected by the interest rate rise, but their monthly payments will increase when they come to remortgage.
What does the interest rate rise mean for the economy?
The interest rate rise is likely to have a negative impact on the economy.
Higher interest rates make it more expensive for businesses to borrow money, which can lead to reduced investment and job losses.
Higher interest rates also make it more expensive for consumers to borrow money, which can lead to reduced spending and a slowdown in economic growth.
Conclusion
The Bank of England's decision to raise interest rates is likely to have a significant impact on homeowners and the economy.
Homeowners with variable or tracker mortgages will see their monthly mortgage payments increase, while homeowners with fixed-rate mortgages will be affected when they come to remortgage.
The interest rate rise is also likely to have a negative impact on the economy, leading to reduced investment, job losses, and a slowdown in economic growth.
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