UK base rate rise raises costs for some mortgage borrowers while sparking modest gains for savers

The Bank of England raised its base rate on Thursday, a move that will immediately affect about 510,000 homeowners with tracker mortgages, whose payments will rise in line with the increase. UK Finance estimates the typical monthly cost for a tracker mortgage holder with a £147,000 balance will go up by £30.72.

Borrowers on standard variable rates (SVR) are also likely to see higher payments. Assuming lenders pass on the full increase, a typical SVR customer could pay an additional £14.28 per month, although lenders are not obliged to pass on the entire rise.

For new mortgage deals, the average rate has climbed to a three-year high of 5.89%, up from 5.83% in early October and 4.99% a year earlier, according to Moneyfacts. Some lenders, including Halifax, Barclays and Nationwide, have introduced new fixed-rate products priced below 5% for borrowers with sizable deposits or equity.

Around 2.3 million fixed-rate mortgages are set to expire in 2027, with another 200,000 due before the end of the year. Those whose five-year fixed deals end this month, originally secured at 2.59%, may face a rise to roughly 5.99% for a new five-year fixed product. For a £175,000 mortgage with 25 years remaining, that shift would increase monthly payments by about £334, or £4,000 annually. In contrast, borrowers moving from two-year fixed deals are expected to see smaller payment increases.

“If the rise is seen as a one-off precaution, swap rates could ease and lenders would have room to keep cutting fixed rates,” said Nicholas Mendes of broker John Charcol. “If it signals the start of a series of hikes, the recent improvement in mortgage pricing could stall.”

Savings rates are not directly linked to the base rate, but the hike is likely to lift returns on easy-access accounts, which averaged 2.58% on Thursday. Moneyfacts notes that the most competitive easy-access accounts now offer up to 5%, while fixed-rate savings bonds can reach around 5.4%.

Katie Horne of the Flagstone savings platform said banks have been building the anticipated rate increase into fixed-rate savings offers for months and added that a single 0.25 percentage-point rise is not expected to move fixed rates much further.