The Bank of England’s Monetary Policy Committee have voted unanimously for a 25 basis point increase, which takes the BoE’s benchmark interest rate to 0.75 per cent, the highest since 2009.
The outcome was widely expected, with markets pricing in the quarter point rate rise almost fully in the run-up to the meeting.
Latest data from the Financial Conduct Authority (FCA) shows that 34 percent of total outstanding mortgage debt by value is held on variable rates, with the proportion of mortgage borrowers who have variable rate mortgages likely to be even higher than this. The regulator’s data shows that the average rate currently being paid by a variable rate mortgage holder is 2.9 percent.
Richard Haymes, head of financial difficulties at TDX Group, an Equifax company, warned the rise could disproportionately hit those in financial difficulty.
He said: “While an interest rate rise is positive news for people living on their savings income, or holding pensions and investments, it may prove to be the tipping point for those in financial difficulty or struggling with debt.
“A large portion of people who are in personal insolvency hold a mortgage, and a rate rise will obviously increase their mortgage repayments. Due to these people’s unfavourable credit circumstances, it’s likely that majority of mortgage holders in insolvency are tied to variable mortgage products, leaving them particularly vulnerable to a higher interest environment.”