What the interest rate hike means for your money

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David Hollingworth of broker L&C Mortgages said there should be “very little change” to fixed-rate mortgage deals as a result of the Bank Rate increase, because the rate has risen so consistently that markets have been anticipating a further rise.

“The volatility that came as a result of the mini budget should therefore not be a consequence of another base rate rise this week as markets have already already priced in an increase,” said Mr Hollingworth.

However, Aaron Strutt of broker Trinity Financial warned that although markets had been pricing in another Bank Rate rise, they may not be prepared for one this significant. He said: “Swap rates have been coming down, but it is difficult to predict exactly how the market will react to a rise as big as 0.75 percentage points.”

Even if fixed-rate mortgages do not leap up in price overnight, they are still very expensive right now, with the average rate for a two-year fixed-rate deal currently at 6.46pc, according to financial data provider Moneyfacts, up from 5.43 pc at the start of October.

Standard variable rates and tracker mortgages

Any Bank Rate increase has an impact on those on a variable rate deal, as these move in line with the Bank Rate.

According to UK Finance, the banking trade body, there are 715,000 homeowners with tracker mortgages and 895,000 on a standard variable rate.

The average rate on a tracker is currently 3.69pc, according to Moneyfacts.

Tracker mortgages are tied to the Bank Rate so if a loan with the average rate went up by 0.75 percentage points, it would cost a homeowner £130 extra a month, assuming they had a £300,000 loan to be paid back over 30 years.

The impact of a Bank Rate rise on an SVR is harder to predict as these move “depending on the lender’s decision, which can take some time to feed through,” said Mr Hollingworth.

The average rate for an SVR is 5.86pc, up from 5.63pc in October, according to Moneyfacts, although some lenders such as Stafford Railway Building Society are offering SVRs at rates of 4.15pc. Lenders could decide to increase SVR rates in line with the Bank Rate or by a smaller or larger amount, said Mr Strutt.

Mr Hollingworth said: “Given the current uncertain outlook many are still likely to favor the security of a fixed rate, although some are weighing up whether a variable could be an option if rates may not climb as high as many have forecast.”

Savings

Savvy savers have been the biggest winners of this year’s releaseless rate rises.

An extra £8.1bn was deposited into savings accounts in September – the highest amount saved since June 2021 – as rates soared for the first time in over a decade. An increase to the Bank Rate rise means savers can expect rates to continue their upward trajectory.

However, savers should not rely on sudden jump in rates at the end of the week. Sarah Coles of investment firm Hargreaves Lansdown said: “For savers, any rate rise is unlikely to provide an overnight big bang where rates jump significantly.”

She said smaller banks and online banks would “continue nudging rates up a fraction at a time”.

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