Interest rates have been increased to 4.25% from 4% by the UK’s central bank in an attempt to get inflation under control.

The Bank of England’s decision to lift rates for the 11th time in a row comes after figures showed the cost of living rising by more than expected.

Inflation jumped to 10.4% in the year to February, despite predictions it would fall.

The rate rise comes amid lingering worries over the global financial system after two US banks failed.

The latest rate hike makes the cost of paying back mortgages, other loans and credit cards more expensive but should mean people get a better return on your savings.

Industry reactions: 

Marcus Dixon, director of UK residential research at JLL, said: “A further rate rise at an MPC meeting has become almost a foregone conclusion, with rates rising 10 times since December 2021 and the last meeting in February. But views on the outcome of the March meeting were mixed. On one hand, the uncertainty surrounding the collapse of the Silicon Valley Bank and the take over of Credit Suisse by UBS, alongside more encouraging news on the outlook for inflation from the OBR suggested the committee may stick. But yesterday’s double digit inflation figures, showing an uptick in CPI in February increased the odds of a rate rise.

“Even with todays 25 basis point rise we expect this will signal a topping out (or near topping out) of rates. This is in line with our expectations on rates, with JLL forecasting this will mean house prices fall by 6% nationally in 2023, with the market starting to see annual growth return in the latter part of 2024.”

Jeremy Leaf, north London estate agent, commented: “There is a close call between change and no change – this latest rise in rates is a huge disappointment for the housing market as we were hoping the Bank would trust in its own data and leave well alone.

“Activity is slowly beginning to pick up after a very quiet last quarter of 2022 and the housing market is so important to overall economic prosperity. Of course, it is important to reduce inflation as far as possible in view of its impact on buyer confidence to take on debt. Overall, the economy still feels fairly weak as real incomes are falling so we would have liked to have seen at least one month without a rate rise.”

Dominic Agace, chief executive of Winkworth, said: “We are now near the peak of the tightening cycle and with a strong appetite from lenders remaining, mortgages now appear to have settled in for the long term at around 4%. At this level, with a strong employment market and improving economic sentiment, we see a more benign year ahead than expected, with prices drifting down on average by 5%, as affordability feeds through differently in different areas, increasing price performance disparity driven by location but with a soft landing in sight.”

Richard Donnell, executive director of research at Zoopla, commented: “We don’t expect the increase in the base rate to make much difference to the outlook for the housing market. Demand for homes is down on last year but sales are still being agreed albeit at a slower rate (20% lower). People still want to move and households are resetting their plans in an environment of higher borrowing costs. Talk of a big price correction in home values has been overplayed and if you price your home sensibly, it’s likely to attract interest subject to some negotiation on the final price.”

Nathan Emerson, chief executive for Propertymark, said: “With interest rates again rising, we of course expect to see challenges within the market. For some current homeowners, the cost to remortgage will mean finding an extra £200 to £300 a month on average, whereas for many of those entering the property market, they will need to re-imagine their budgets and adjust their affordability.

“Previous increases are returning us back to a more sensible market with supply and demand levels evening out. This in turn has started to soften house prices and we would expect this trend to continue to counteract the unsustainable transaction levels and unachievable house price increases seen previously.”

Nick Leeming, chairman of Jackson-Stops, commented: “Hot off the heels from a surprise rise in inflation for February, the latest decisive action in a marathon of measures by the Bank of England to bring inflation down by the end of the year should have the long-term effect of calming the markets. This could, however, be a fly in the ointment for housing, as mortgage borrowers watch intently to understand the effect this may have on current deals.

“In the medium term, as with an ever-evolving economic picture, if inflation is successfully scaled back, the overall lending market may paint a more favourable picture for borrowers with further stability on the horizon.

“Home ownership continues to sit at the top of the table for savers looking to beat inflation and make their money work harder for them. No cash savings rates currently available can beat inflation. By comparison from January 2022 to January 2023, the average UK house price rose by £17,000, showing just how reliable longer term capital growth in our bricks and mortar can be. Even with the average monthly mortgage payment being £733, homeowners could have made an average profit of £8,156.”

Lucian Cook, head of residential research at Savills, said: “An estimated 70% of mortgage holders will continue to be insulated from the full extent of recent rate rises But a squeeze on household finances will be felt by an estimated 1.65m borrowers on variable rate mortgages and a further 1.36m mortgage holders whose fixed rate deal expect to come to an end in 2023

“Today’s 0.25% interest rate rise will likely mean we see prospective buyers remain cautious about moving over the rest of the year, and will further tip the market towards cash and equity rich buyers.

“The impact on buyers’ budgets will weigh on house prices especially in the lower rungs of the housing ladder, where debt is the predominant source of funding.

“We estimate that around 70% of mortgage holders will be continue to be insulated from the full extent of recent rate rises given the number locked into fixes of 5-years or more since the introduction of mortgage regulation. But, a squeeze on household finances will be felt by an estimated 1.65m borrowers on variable rate mortgages, and a further 1.36m whose fixed rate deal comes to an end in 2023.

“The average borrower coming to the end of a fixed rate deal on a 25-year repayment mortgage will see their bill rise by £3,199 a year to £13,641 in 2023 unless they are able to extend their mortgage term or temporarily move to an interest only mortgage. Around a further 1.18m borrowers could face an increase in mortgage costs next year as fixed rate deals end, though the impact for them will be less acute assuming – as we do – that the bank base rate is at or very close to peaking.

“The number of borrowers who remain insulated by fixed rates, and the extent to which borrowers have had their affordability rigorously stress tested by lenders, means the shock to homeowners finances should not be wholly unmanageable. These factors limit the risk of a flood of stock hitting the market.”

Simon Gammon, managing partner at Knight Frank Finance, said: “At least two major lenders have increased mortgage rates on various products this past month and today’s decision by the Bank of England means they are unlikely to be the last. Swap rates, instruments used by the banks to price mortgages, have been moving up since Wednesday’s hot inflation reading. In the absence of meaningful data suggesting that rising prices are easing more quickly, then the trend for mortgage rates looks clear.

“That is not to say we are expecting spikes in mortgage rates akin to those we saw after the mini-budget. The mortgage market is likely to be much more stable over the medium-term, however it’s now more likely that several weeks of easing mortgage rates has bottomed out and those considering fixing should lock in a deal. Most can be renegotiated should conditions move in the other direction.”

Brian Murphy, head of lending at MAB, commented: “What first appeared four years ago as a welcome bonus for mortgage borrowers has become a gift that keeps on giving. The Bank of Ireland’s recent tracker rate rise has darkened the outlook for some mortgage holders, but many tracker products have become more attractive at the lower Bank Base Rate (BBR). The continuing 0.5% rate from the Bank of England has also meant that anyone whose Standard Variable Rate is fixed within 2% of the BBR has continued to reap the rewards of unexpectedly low interest rates.

“Far from being a flash in the pan, there is no sign that the BBR will be increased any time soon, so borrowers with SVR products from lenders like Nationwide and Cheltenham & Gloucester predating the 0.5% rate can count on their ‘honeymoon period’ extending for the foreseeable future.”

Tom Bill, head of UK residential research at Knight Frank, said: “There has been upwards, downwards and sideways pressure on mortgage rates in recent weeks as lenders digest a spike in inflation, a slump in sales volumes and a larger dose of caution in swap markets following the collapse of Silicon Valley Bank. The good news is that any movements in borrowing costs pale into insignificance compared to the period following the mini-Budget and the overall picture is one of stability. Today’s decision is unlikely to dampen demand in the housing market, which has proved more solid than expected so far this year against an improving economic backdrop. We expect prices will fall by a few percent in 2023 as more homeowners transfer to higher fixed-rate deals and supply rises from the lows of the pandemic.”

Adrian Anderson, director of Anderson Harris, remarked: “Mortgage holders hoping that the Bank of England would pause the interest rate rises were dealt a blow yesterday by the surprise leap in inflation to 10.4% in February 2023.

“Today’s rate rise to 4.25% is consistent with the Bank of England’s plan to battle inflation but it means no gain, just more pain for mortgage holders who are already squeezed.

“This will be particularly challenging for homeowners who have chosen to take a variable rate mortgage in the short-term, in the hope that inflation reduces and they can select a lower longer term fixed rate than what is available now.”

Nigel Purves, co-founder and CEO of Wayhome, Nigel Purves, commented: “We’ve already seen how increasing interest rates have brought uncertainty to the mortgage sector and it’s the nation’s first-time buyers who have been hit hardest in this respect.

“Not only are they facing the tough task of accumulating a deposit on the ever increasing cost of a home, but the number of higher loan to value products has also reduced, while the monthly cost of repaying a mortgage has climbed.

“It’s a bleak outlook, to say the least, and one that will be all the bleaker following today’s decision.”

Rightmove’s mortgage expert, Matt Smith, added: “This has been an unusual six weeks, which started off with a Base Rate rise looking almost certain, to then quickly looking unlikely. And then, within the last 48 hours, the outlook changed again following the publication of the inflationary figures. This has culminated in the Bank raising rates to 4.25%.

“During this period of uncertainty, lenders have largely kept mortgage rates flat while they awaited the outcome of three key events: the Spring Budget, the UK inflation rate report, and today’s Base Rate decision. This means that current mortgage rates already factor in a rate rise in March, so we won’t necessarily see mortgage rates increase following today’s decision.

“The fact that the rate rise is lower than the previous rise, along with the longer-term indication that inflation is still likely to fall sharply over the year, should now give lenders more confidence to start to edge down their rates. Lenders will wait to see how markets respond to the Bank’s rate rise announcement before they reprice their deals.”

Bank of England poised to raise interest rates today amid inflation surprise jump