Bank of England raises Base Rate to 4%: What it means for your mortgage and savings

Key takeaways

• Base Rate is now 4%: All nine MPC members voted to raise rates, with eight backing a 0.25% rise and one pushing for 0.5%. It's the first rise since August 2023.
• Trackers feel it first: The average tracker borrower will pay about £31 more a month.
• Fixed rates had already moved: The average two-year fix was 5.96% and the five-year 5.99% as of 4 November.
• Good news for savers: Higher rates usually mean better returns, so make sure your cash is pulling its weight.

Why did the Bank raise rates?

One word: inflation. That's how fast the price of everyday stuff is rising, and the Bank's job is to keep it close to 2%.

Right now, it's not close. Inflation hit 3.5% in September, up from 3.1% in August, mostly thanks to pricier petrol and diesel. The war with Iran has pushed up energy costs around the world, and oil prices jumped again when fighting resumed in the Strait of Hormuz in July.

Inflation has also been running hotter than the Bank expected, and it's warned it could top 4% early next year. Governor Andrew Bailey has said the Bank can't sit and wait for rising prices to show up in wages, or it'll be too late.

The UK has been playing catch-up, too. The US Federal Reserve raised rates in September, and the European Central Bank has raised twice since June. Essentially, the Bank's "hands are increasingly being forced".

Today, the MPC decided enough was enough. Eight members voted for a quarter-point rise, and one, Catherine Mann, wanted to go further with a half-point rise to 4.25%. And Bailey was clear that getting inflation back on track depends on "real progress towards settling the conflict in the Middle East".

So, what happens next?

Honestly? No one knows for sure.

Markets have been betting on up to four rises over the next 12 months, which would take Base Rate to somewhere between 4.75% and 5%. Economists are calmer about it, with many thinking two rises is more likely.

There's more pressure on the way, too. The energy price cap is expected to go up by more than £400 in January, which could keep inflation sticky.

The Bank's new forecasts don't make for easy reading. It now expects inflation to climb to around 4.5% early next year and about 5% by the middle of 2027, well over double its 2% target. Bailey said that without real progress in the Middle East, he could see the argument for another rise. But the Bank also stressed it isn't on a pre-set path, and it didn't sign up to the further rises markets are expecting. The next MPC announcement is on 17 December.

What we do know: things are uncertain. And that matters whether you've got a mortgage, need one soon, or are building your savings.

And what about last week's Budget?

It's been a busy fortnight for your finances. On 28 October, new Chancellor John Healey delivered his first Autumn Budget, promising households some "breathing space".

The headline was help with the cost of living. Around 20 million homes in council tax bands A to D will get a £100 Household Energy Payment, the 0% VAT rate on domestic electricity has been extended until July 2027, and fuel duty is frozen again.

So does that change the picture for interest rates? Not much. Economists think the measures will only slightly dent the expected rise in inflation. And the Budget watchdog still expects household incomes to fall by 0.6% next year once inflation is factored in.

There was good news for first-time buyers, too. The government confirmed its Your First Home scheme will launch next spring, offering a government equity loan so eligible buyers can buy a new-build home with a 2.5% deposit. Find out more about the scheme here.

And if you're a saver, there were some big changes. More on those below.

What does this mean for mortgages?

That depends on what kind of mortgage you've got, and whether you need a new one soon.

On a tracker or standard variable rate?

Tracker mortgages typically move in line with Base Rate, so borrowers are likely to feel today's increase first. Standard variable rates (SVRs) are set by individual lenders, who can choose whether to pass on the rise. There are around 510,000 tracker mortgages and 470,000 borrowers on standard variable rates (SVRs) in the UK.

For the average tracker borrower, today's rise adds about £30.72 a month, or £368.64 a year. If you're on an SVR, it's up to your lender whether to pass it on, but if they do, that's around £14 more a month.

On a fixed rate?

You're in good company: 87% of mortgages, or 7.36 million, are fixed. Your payments stay the same until your deal ends. The catch? The rates waiting for you on the other side look very different.

As we covered last time, fixed rates follow swap rates (what markets think interest rates will do next), not just Base Rate. And swap rates have been on a rollercoaster. The average two-year fix went from 5.88% to 5.97% in just four weeks, and major lenders' cheapest deals are now 0.44% higher than at the start of September.

Zoom out and it's even bigger. Typical rates started the year at 4.83%, and since the war began, they've added over £2,000 a year to the typical mortgage repayment.

There are some green shoots, though. Barclays, Halifax and Nationwide have all trimmed some rates in recent days.

Deal ending soon?

You're not alone. Around 700,000 fixed deals are ending between July and December, and another 2.3 million next year.

If you fixed five years ago, brace yourself. Back then, the average five-year remortgage rate among the top ten lenders was just 1.30%, or about £781 a month on a £200,000 mortgage. At today's average of 5.16%, that's £1,188 a month, nearly £4,900 more a year.

To keep payments down, lots of people are stretching their mortgage, with many 25 to 54-year-olds opting for terms of 25 to 40 years. That can lower your monthly bill, but you'll usually pay more interest overall, so chat it through with an adviser first.

Our top tip? Don't leave it to the last minute. Most lenders let you lock in a new deal up to six months before your current one ends. You get certainty now, and you're not stuck if rates drop.

Buying a home?

The housing market has slowed right down. Mortgage approvals hit a near three-year low in September, and prices rose just 0.5% in the year to October, the slowest in over two years. The average home now costs £273,566.

Savills expects prices to dip a little for the rest of this year and fall 1.5% in 2027, before picking up from 2028. And who does it think will lead the bounce-back? First-time buyers. The biggest growth is tipped for northern England, Wales and Scotland.

So if you're ready to buy, a quieter market could work in your favour: less competition, and more room to negotiate. Get your agreement in principle sorted, and you'll be ready to move when you find the one.

Self-employed or paid in a non-standard way?

This one doesn't get talked about enough. Nearly half of self-employed people looking for a mortgage have delayed or dropped their application because of how they earn.

But one 'no' doesn't mean 'no' everywhere. Every lender has different criteria, and some are much friendlier to contractors, people with several income streams, or those with a thin UK credit history.

So don't give up. A broker who searches the whole market, including specialist lenders, can find the ones that fit you.

What does this mean for savers?

Now for the silver lining. Higher interest rates usually mean better returns on your savings. Today's rise could help keep savings rates higher for longer. Each provider sets its own rates, though, so it pays to check what you're actually getting.

As of 4 November, the average easy access account was paying 2.58%, the average easy access Cash ISA 2.79%, and the average one-year fixed account 4.48%.

Now stack that up against inflation at 3.5%. If your money's earning less than that, it's quietly losing buying power. Your balance doesn't shrink, but the same amount buys you a bit less each year. And if inflation tops 4% early next year, that gap gets bigger.

What the Budget means for your savings

Last week's Budget brought a few changes savers need to know about:

• Your Cash ISA allowance is safe. The plan to cut it to £12,000 for under-65s from April 2027 has been scrapped, so you can still save up to £20,000 a year into a Cash ISA, whatever your age.
• Tax on savings interest is going up. From April 2027, tax on savings income outside an ISA will rise to 24%, 44% or 49%, depending on your tax band. That makes tax-free accounts like ISAs even more valuable.
• More flexibility for Lifetime ISA savers. If you're buying a home over the £450,000 price cap, the withdrawal penalty for otherwise eligible withdrawals has now changed, so you'll at least get back what you paid in.
• A new First Time Buyer ISA is on the way. It'll replace the Lifetime ISA for new savers from April 2029, with the 25% government bonus worked out on your final balance, including interest. If you've already got a Lifetime ISA, nothing changes for you right now.

The short version? Using your ISA allowance has never mattered more.

Give your savings the right job

The best account depends on what you're saving for, and when you'll need it:

• Building a rainy-day fund? An easy access Cash ISA lets you dip in whenever you need, and the interest is tax-free.
• Saving a bit each month? A Regular Saver helps you build the habit, with penalty-free withdrawals.
• Saving for your first home? A Cash Lifetime ISA tops up what you pay in with a 25% government bonus, and HomeSaver® gives you a boosted rate when you get your mortgage through Tembo.
• Got cash you won't need for a while? A Fixed Rate Cash ISA locks in your rate, so you know exactly what you'll earn, whatever rates do next.

So, what's the big takeaway this month?

A Base Rate rise sounds like big news, and it is. But for most people, the real change happened in the weeks before, as lenders priced it in.

If you're buying or remortgaging, don't wait on the Bank of England to make your move. If your deal ends in the next six months, or you're hoping to buy soon, locking in a rate now gives you certainty. And with Tembo's RateCheck, you can still switch if a better deal comes along.

If you're saving, now's a great time to check what your money's earning, and whether your account still fits your goals. Want certainty? A fixed rate could be the one. Need access? An easy access Cash ISA keeps your options open.

No one can say for sure where rates go next. But you can know your options, and be ready to make your move when the time's right for you. We're here to help you make home happen.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Full terms and conditions of our rate checking service can be found here.

Mortgage and savings products are subject to eligibility and terms and conditions. The value and availability of mortgage deals and savings rates can change.