What the Bank of England’s Latest Base Rate Increase Means for Mortgages

What the Bank of England’s Latest Base Rate Increase Means for Mortgages
Mark Langshaw

Author: Mark Langshaw - Content Manager

Updated: May 3, 2023

The Bank of England today (23rd March) announced that its base rate has been increased from 4% to 4.25% to help curb inflation and the rising cost of living.

Confirmed at the latest meeting of the bank’s Monetary Policy Committee, the move was widely expected following last month’s surprise inflation surge, which saw it rise to 10.4%.

This is the central bank’s 11th consecutive rates hike and it has seen the base rate climb to its highest level for 14 years, but what does this mean for mortgages?

Variable rate mortgage holders to feel the pinch

Mortgage holders on variable rate agreements, such as tracker mortgages, will likely see their interest rate rise immediately, as many of these are tied directly to the base rate and can move up or down with it.

There are an estimated 1.4 million people in the UK on variable rate mortgages, with the average tracker agreement expected to cost an additional £24 per month following today’s announcement and a typical standard variable rate customer likely to pay £15 extra.

Compared to pre-December 2021, tracker mortgage customers are now paying almost £400 more a month and other variable rate customers around £250.

Use our mortgage difference calculator below to get an idea of how much your mortgage payments might increase by.

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Mortgage Difference Calculator

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Speak to an experienced broker to help find you the best mortgage solution for your current circumstances.

Will new fixed-rate mortgages be affected?

There is a possibility that some mortgage lenders will increase the rates on fixed-rate mortgages for new applicants following the news from Threadneedle Street; but given that the rise was expected, it’s just as likely that it has already been factored into their latest product ranges.

This means that the cost of new fixed-rate mortgages might hold firm, and the good news is that they have been steadily normalising since hitting a peak in the wake of the UK Government’s disastrous Mini-Budget in September last year. They’re now at a six-month low.

In the aftermath of the announcement, some lenders moved quickly to update the rates on their product ranges, but there was no consistent trend across the industry. Virgin Money increased the rates on some of its tracker deals, while Nationwide actually reduced the rates in certain products, such as switcher mortgages and first-time buyer exclusives. Specialist lender Hope Capital announced that it was holding rates on mortgages of over £500,000 for now.

Whether this trend will continue might well depend on what the Bank of England does next. If there are no further rates hikes going forward and inflation begins to come down, this will likely be reflected in the cost and term length options for new mortgage products that hit the market.

How likely are further base rate hikes?

Some experts and analysts believe that the base rate may now have hit its peak, given that the latest rates hike marked a smaller increase than its predecessors.

Moreover, the government announced a raft of measures to combat the cost of living crisis in its Spring Budget – including a three-month extension to the energy price guarantee – and their impact on the economy is expected to filter through by the time the Monetary Policy Committee meets to discuss the base rate again.

The central bank no longer believes that the UK is on course for a full recession, which also bodes well for positive news during May’s base rates meeting.

All of this, however, is no guarantee that further base rate increases are off the table. While inflation remains well above target levels, there is always the possibility that Threadneedle Street could vote in favour of further rises.


If you’re concerned about future base rates increases or rising mortgage costs, get in touch and we will match you with a mortgage broker who can offer independent advice and lay out all of your options.

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