The Bank of England has increased the base rate from 3.5% to 4%.

But what does that mean?

This rate is used by the central bank to charge other banks and lenders when they borrow money – and so it influences what borrowers pay and what savers earn.

What has led to the upward trend?

It's the tenth time in just over a year that the Bank has increased rates after it first lifted them to 0.25% from 0.1% in December 2021.

The hike follows a drop in the Consumer Prices Index measure of inflation to 10.5% in the 12 months to December 2022, down from 10.7% in November.

The Bank of England currently predicts inflation will continue to fall gradually over the first half of 2023.

Who will be impacted?

Base rate rises will affect most mortgages unless they're fixed.

The vast majority of mortgage holders in the UK have a fixed-rate mortgage, so for most, nothing will change. The key points for mortgage holders are:

Fixes are fixed. But sort a new deal soon if yours is coming to an end.

On a tracker mortgage? Rates will increase. As the name suggests, these 'track' the base rate, so mortgage costs will go up. In general, this latest rise means about a £27 increase in your monthly payments on a £100,000 mortgage.

What should I do with my mortgage?

If you're on a fixed rate. Nothing will change with your existing deal, however, any new deal you remortgage to in future may now be more expensive as interest rates on fixed mortgages have shot up dramatically over the past 12 months.

If you're close to the end of your current term, you might want to search for a new mortgage deal now. You can usually lock in a mortgage offer three to six months ahead of time.
If you've six months or longer to go on your fix, you'll either need to wait for your initial deal term to run out or pay the charge to leave early.

If you're on a standard variable rate (SVR) or 'discount' mortgage. If you're on the SVR, you're free to remortgage to a new deal at any time. It's worth checking if you can as SVRs tend to be pricey.

If you're on a discount mortgage that has gone up, you may be able to remortgage without penalty, but do check. If not, you'll either need to wait for your initial deal term to run out, or pay the charge to leave early. Again, our Ditch your mortgage? calculator can help you decide.

If you're on a tracker mortgage. If you're concerned about this rise, or further rate rises, check now to see if you can switch to a better deal – though currently many tracker mortgage rates are far cheaper than fixes. Also check if there are penalties to leave your current deal now – many trackers do have them.

If you do have early repayment charges, you'll either need to wait for your initial deal term to run out, or pay the charge to leave early. If not, then you're free to switch to another mortgage. Our Ditch your mortgage? calculator can help you decide, plus our MSE News story on what's in store for mortgages in 2023.