The Bank of England has raised the base rate by 50 basis points, lifting interest rates to 1.75%.
This is the highest rate rise since 1995, and the greatest increase since the central bank was given control of the crucial decision.
At its meeting today, the Monetary Policy Committee voted by a majority of 8-1 on the increase.
The move aims to help counter rising inflation, which the BOE now predicts will hit 13% before year end. It hopes to reduce inflation to 2% in two years – it stood at 9.4% in June.
This is the sixth time the MPC has raised the base rate since December 2021, the most recent being a rise of 25 basis points to 1.25% in June.
Interest rates are now at their highest since December 2008.
Last month, the BOE said it expects 40% of all mortgage to rise in the next 12 months.
Legal & General Mortgage Club head of broker and propositions Clare Beardmore says: “Following yet another UK base rate increase and with news of rampant inflation dominating the headlines, many homeowners will be left worried about how this latest news will affect their monthly repayments or ability to borrow.
“While it’s important the industry continues to monitor these signals, we need to stress that these economic headwinds are yet to cast a shadow over the housing market. Purchase activity shows little sign of cooling off, and buyer demand remains high. Many consumers will feel little immediate effect and certainly those on a fixed-rate products won’t feel any impact on rates until their mortgage deal comes to an end.
“That doesn’t, however, mean there isn’t work to be done. Borrowers on variable or tracker mortgages in particular will need reassurance and clear communication about what these changes mean for them. Advisers have a vital role to play interpreting these changes and explaining them to consumers, especially as the rise in living costs are forcing some borrowers to make difficult financial choices.
“For lenders too, this can be a difficult environment to navigate, and advisers will need transparency on product withdrawals or changing rates so we can ensure customers are still very much able to get a footing on the housing ladder.”