Mortgaged homeowners were hammered by the Bank of England again today as it upped interest rates to a 15-year high in a bid to tackle stubbornly high inflation.
The Bank’s Monetary Policy Committee increased the base rate by 0.25 percentage points on Thursday, taking it to 5.25 per cent, a level last seen in 2008.
Signs that inflation has turned a corner have fuelled hopes that policymakers could soon take their foot off the gas over rate rises.
The 14th consecutive rise comes amid signs that the UK economy is slowing under the weight of higher interest rates.
But the move today will put further pressure on homeowners looking to remortgage in the near future. Some economists had warned that the Bank could decide on a 0.5-point increase.
Mortgage holders on tracker deals face nearly £24 per month being added to their payments, on average, following the rise.
The MPC said that some of the risks from more persistent inflation, notably wage growth, had ‘begun to crystallise’, prompting it to push borrowing costs higher.
The policymakers also indicated that interest rates would need to stay higher for longer in order to bring inflation back down to its 2 per cent target. Deputy Governor Ben Broadbent said it had to ensure rates are ‘sufficiently restrictive’ over the medium term.
House prices fell at the fastest annual rate in 14 years in July, as housing affordability has been stretched for people looking to buy a home with a mortgage, Nationwide said.
However the Bank of England today said it believes that the UK will avoid a recession caused by the rate rises, albeit with growth remaining flat for up to three years.
It believes inflation will fall to 4.9 per cent by the end of the year, but Consumer Prices Index (CPI) inflation will remain above 2 per cent until mid-2025.