THE Bank of England raised interest rates to their highest level in 14 years yesterday as it tries to curb soaring inflation.
Interest rates were increased by 0.5 percentage points to 3.5 per cent — meaning higher mortgage costs for millions.
The rise — the ninth in a row — will instantly hit the 2.2million people on tracker rates, meaning someone with a £200,000 deal following the base rate will have to pay an extra £326 a month, or £3,912 a year.
Meanwhile, those who have to remortgage next year are likely to have to take a £250 monthly hit.
The average new five-year fix is at 5.63 per cent, compared with 2.25 per cent at the start of the year.
Alice Guy, personal finance editor at interactive investor, said: “It’s true that mortgage rates have been higher in the past but the problem is that house prices are now at their most unaffordable level since Victorian times.
“Someone earning the average salary would now need to pay 8.5 times their salary to buy the average house, compared with about five times in the 1970s.”
The Bank indicated that it was likely to continue raising interest rates next year.
Traders are now betting interest rates will peak at 4.5 per cent next September, before gradually falling.
Andrew Bailey, governor of the Bank of England, said: “We’re doing it because inflation is too high.
“We think it will fall back quite sharply next year and raising interest rates is the best way we have of making sure that happens.
“By raising interest rates we can bring inflation down sooner and help the economy prosper and grow.”
In a glimmer of good news the Bank confirmed it believed inflation had already peaked, partly because of the government’s energy bills relief efforts.
It also reaffirmed that the UK would face a shallow recession, expecting the economy to shrink by 0.1 per cent in the last quarter.
Chancellor Jeremy Hunt said: “It is vital that we stick to our plan, working in lockstep with the Bank of England as they take action to return inflation to target.”
