The Bank of England’s monetary policy committee has announced its decision on base rate.

It will rise by 0.25 per cent to 5.25 per cent.

The last time interest rates stood at 5.25 per cent was 15 years ago in April 2008. 

However, today’s rise is a smaller increase than July’s dramatic hike from 4.5 to 5.0 per cent and follows signs that inflation has begun to ease. Inflation fell by much more than expected in June and at 7.9 per cent is at its lowest level in over a year – but it is still almost four times higher the Bank of England’s 2.0 per cent target.

This poses danger for buy-to-let landlords according to Giles Mackay, founder of instant buying firm UPSTIX. He says: “Much of the discussion around interest rates to date has focused on whether homeowners will be able to meet their mortgage payments, but the Bank of England’s latest 25bps rise puts a question mark over the sustainability of the country’s buy to let sector, which is particularly exposed.

“The popularity of interest-only mortgages among landlords means that 40 per cent are likely to drop below a healthy interest coverage ratio by 2025 – which will require either raising rents at a time when tenants’ budgets are more strained than ever before, or selling up and realising the historic gains in property values of recent years.”

Rachel Springall, finance expert a independent mortgage monitor Moneyfacts, says: “This latest base rate rise will come as disappointing news to borrowers worried about rising mortgage repayments. Those who still have a low-rate fixed mortgage would be wise to overpay where they can, with the aim of reducing their loan and the term of their mortgage. Interest rates on mortgages are much higher than some may realise, so borrowers will need to ensure they have surplus funds to meet higher repayments when they come off a lower rate deal. Consumers struggling with their outgoings amid the cost of living crisis, or who have become a ‘mortgage prisoner’, would be wise to seek independent advice to review their situation.

“Fixed rate mortgages, for two, five and 10-year terms are around 3.0 per cent higher on average compared to December 2021 and the average Standard Variable Rate  has risen consecutively over the same period, so a fixed mortgage can give borrowers some peace of mind by securing their monthly repayment.”