Bank of England raises base rate to 4.25%: what it means for your mortgage and savings

The Bank of England has raised the base rate for the 11th time in a row, taking the figure to 4.25% as it tries to halt soaring inflation.

Members of the Bank's Monetary Policy Committee (MPC) voted for a 0.25 percentage point rise, bringing the rate to levels not seen since the financial crash of 2008. 

The 15-year high is a far cry from the historic lows of December 2021, when the base rate was at just 0.1%.

The sharp climb over the past 15 months has resulted in heightened interest rates for both mortgages, with hard-pressed households facing further pressures. 

The latest base rate hike comes after inflation unexpectedly jumped higher last month, reaching 10.4%. 

Here, Which? takes a look at what yet another increase could mean for homeowners and savers.

Bank of England raises base rate to 4.25% 

The MPC has voted by a majority of 7-2 to increase the base rate by 0.25 percentage points. The committee sets the base rate as part of its efforts to keep inflation at 2%, yet the current figure of 10.4% towers above the target.

The latest base rate rise from the MPC, which meets eight times a year, comes following a 0.5 percentage point hike in January. Prior to that, the Bank increased its benchmark by 0.75 percentage points in November – the biggest single rise since 1989.

Two members of the committee voted to keep the base rate at 4%, however, the majority were in favour of a further hike.

Results of the next meeting will be published on Thursday 11 May.

The graph below shows how the base rate has changed since July 2008, using data from the Bank of England.

What does the base rate rise mean for my mortgage?

The vast majority of homeowners have a fixed-rate mortgage, which means the rate stays the same for a set period – usually two or five years. 

If you've got a fixed-rate deal, you won't be immediately affected by the base rate change and will instead continue to pay the same amount until the end of your fixed term. 

When you come to remortgage, however, you're highly likely to find that deals have become more expensive. 

With rates rising, it's important to remember to switch deals at the end of your fixed term. If you don't, you'll be moved on to your lender's standard variable rate (SVR), which is more expensive and leaves you vulnerable to further base rate rises.

The graph below shows the relationship between base rate changes and mortgage rates for two and five-year fixes, using data from Moneyfacts.

Tracker, discount and standard variable rate mortgages

Tracker mortgages follow the base rate plus a set margin – for example, the base rate plus 1%. If you're on this type of deal, your rate will go up by 0.25 percentage points straight away. 

Discount mortgages work slightly differently. They provide a discount on your lender's SVR – for example, the SVR minus 1%.

Repayments on discount mortgages won't go up automatically due to the base rate rise, but there's a good chance your lender will increase its SVR by some or all of the rise in the coming days or weeks. 

How will your mortgage payments be affected?

By entering your details into our calculator below, you'll be able to see how your current payments could change if you had to pay a higher rate:

How to get support if you're struggling to pay your mortgage

If mortgage rate increases mean you’ll struggle to make your repayments, you should contact your lender in the first instance.

Your bank might be able to offer support measures such as temporarily reducing payments or extending the term of your mortgage.

Our guide on what to do if you can't pay your mortgage outlines what support might be available and provides a list of charities that offer independent advice.

What does the base rate rise mean for savings?

In theory, the base rate rise could lead to better interest rates on savings accounts. This would provide a boost to savers, who have been faced with a dearth of high-interest savings options for years. 

Unfortunately, there's no guarantee that your provider will pass on the latest increase – at least not immediately. Savings rates have been on the rise recently, but even the best rates are nowhere near matching inflation. 

If you're thinking of switching to get a better rate, now is a good time to shop around to see what deals are available and whether you can take advantage of increased competition in the market. 

• Find out more: how to find the best savings account

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Why does the base rate matter?

When the Bank of England lends money to commercial banks, the amount of interest they must pay back is determined by the base rate.

A higher base rate means lenders are charged more, and these costs are usually passed on to customers in the form of interest rate rises. 

Theoretically, a higher base rate should mean mortgages get more expensive and savings accounts pay more interest on your money, but that isn't always the case.  

• Find out more: how the base rate works 

Will the base rate increase further this year?

Financial forecasters feared we could see the rate hit 6% in 2023, but the Bank of England's governor, Andrew Bailey, suggested in November that the figure would not reach those heights.

Some experts believe the base rate could have now hit its peak, but others predict we will still see further increases. The Bank anticipates inflation will 'fall quickly' from the middle of 2023.

In its new report, the Bank states: 'CPI inflation increased unexpectedly in the latest release, but it remains likely to fall sharply over the rest of the year.'