Bank of England raises interest rate to 4%: what it means for borrowers and savers

The Bank of England raised Bank Rate by 0.25 percentage points to 4% on 5 November, its first increase in more than three years. Tracker mortgage holders will see borrowing costs rise with the rate; the effect on variable mortgages and savings depends on individual providers.

Which mortgage holders will pay more?

About 510,000 UK mortgage holders have tracker rates, which move with Bank Rate, Metro reported. UK Finance estimates cited by Metro put their average monthly increase at about £31. For variable-rate borrowers, the same estimates put the increase at about £14, but lenders determine whether and how much to pass on. The Guardian said most, if not all, of the 470,000 borrowers on standard variable rates would probably pay more, while stressing that lenders could pass on only part of the rise or make no change.

New mortgage pricing has already moved: the Guardian reported that Moneyfacts’ average new mortgage rate was 5.89%, up from 5.83% at the start of October and 4.99% a year earlier. Some fixed deals were below 5%, mainly for borrowers with at least 40% equity or deposit. The broker John Charcol’s Nicholas Mendes told the Guardian the expected Bank Rate increase had been factored into new fixed mortgage prices, helping explain why some major lenders had cut rates on those deals earlier that week.

What the increase could mean for savers

Savers with easy-access accounts or other variable-rate products may benefit, but savings rates are not explicitly tied to Bank Rate. Providers may delay a change, pass on only part of the increase or make no change. The Guardian put the average easy-access rate at 2.58% on Thursday morning; Moneyfacts’ best-buy easy-access accounts paid up to 5%, while best-buy fixed savings accounts paid up to 5.4% that week.

Katie Horne of savings platform Flagstone told the Guardian that banks had been building an expected increase into fixed savings rates for several months, so the quarter-point move was not expected to lift them much further.

Why the Bank raised rates

The Bank expects inflation to reach 4.9% in mid-2027, compared with its July forecast of 3.2%; consumer price inflation was 3.5% in September, the Guardian reported. Eight members of the Monetary Policy Committee voted for the quarter-point increase, while Catherine Mann preferred a half-point rise.

Governor Andrew Bailey said another increase could be considered if inflation risks persisted, but cautioned that the latest move should not be read as the start of an inevitable long run of increases. The Bank’s next rate decision is scheduled for 17 December, according to the Guardian.