Santander, NatWest and Nationwide are the first banks to announce a raise in interest rates following the Bank of England’s move to increase interest rates from 0.1 per cent to 0.25 yesterday. 

The Bank’s decision could see mortgage holders pay hundreds of pounds more per year, experts have warned, with Santander declaring almost immediately the costs would be passed on to customers.

Santander announced earlier today that all tracker-related mortgage products to the Bank Rate would see an increase of 0.15 percent starting in February. The standard variable rate will increase by 3.5 percent.

Nationwide and NatWest followed the Bank Rate-linked Products of Nationwide, which announcedSe will go up 0.15 percentage point starting February 

NatWest spokesmen said variable rate mortgage agreements would remain under constant review. Nationwide spokespersons said they would release details on the effects of variable rate mortgages “in due course”.  

Some other banks and mortgage companies, including Lloyds and Virgin Money, announced plans to revise rates within the next few days.  

Santander stated yesterday evening that all tracker mortgage products linked to the Bank Rate will increase by 0.15 percentage points from February, and their standard variable rate will also increase to 3.5 per cent.

Santander yesterday night stated that tracker products for mortgages linked to the Bank Rat will see a 0.15 percentage point increase starting in February. Their standard variable rate will also rise to 3.5 Percent.

A NatWest spokesman for the lender said that variable-rate mortgage deals would be kept under 'constant review'.

A Nationwide spokesman said it would announce details of the effect on variable-rate mortgages 'in due course'.

Today, Nationwide and NatWest followed the example of Nationwide in announcing that Bank Rate-linked Products will see a 0.15 percentage point increase starting February. Nationwide spokesperson stated that the effects on variable-rate mortages will be announced ‘in due time’. A NatWest spokeswoman said that the mortgage agreements would continue to be under review.

Brokers said that homeowners should be prepared for sharp rises in the future, if the top economists raise rates further over the next two-years.

They added Britons are likely to also be hit by rising energy costs, food prices and rocketing National Insurance payments.

Meanwhile savers were disappointed by the move but were told there were still ways to make some cash on their nest eggs.

The best ways to make money in spite of the changes are to switch to the most favorable savings plan, buy bank shares or invest in cash-rich companies.

Markets were shocked when the Bank of England raised interest rates to an historic high amid concerns that inflation will rise.

Governor Andrew Bailey increased this level from 0.1% to 0.25 Percent after headline CPI inflation was at 5.1% yesterday. It is the highest in 10 years. 

Santander and NatWest, as well as Lloyds, have been criticised for announcing their intention to transfer these costs to customers. 

Anna Bowes of Savings Champion said that high street banks are robbing customers of their savings interest.

Homeowners should prepare for steep rises in future if top economists rack the rates even higher over the next two years, the brokers said. Pictured: The Bank of England

Brokers said that homeowners should be prepared for sharp rises in the future, if the top economists raise rates further over the next two-years. Photographed by The Bank of England

What will happen to mortgages if the interest rate goes up? 

Many homeowners have moved to fixed rates after switching from mortgages. These were very affordable in recent times, despite fierce competition.

However, trackers and those at variable rates will likely see their bank payments increase soon.  

Passing the 0.15 percentage point increase on to the current average SVR of 4.4 per cent would add around £408 on to repayments over two years, based on £200,000 borrowing and a 25-year term.

Experts warn that the rise will cause havoc in the housing market, and mortgage holders could be subject to severe squeezes.

UK Finance predicted the 850,000 mortgage borrowers on tracker rate deals will face paying an extra £15.54 per month.

But the 1.1million in the country on standard variable rate mortgages will see a leap of just £9.58.

Martijn van de Heijden (CFO of Habito mortgage broker) stated: “Even though an increase in the base rate to 0.25 percent sounds minor, 25% of UK mortgage holders on variable, tracker, or standard rate mortgages will notice this impact their monthly statements moving forward.

“This increase could cause their payments to go up by as much as hundreds of thousands per annum. Today’s key message is that it could be just the beginning of many more hikes.

“Economists already predicted a second increase to 0.5% in Spring 2022 and 1% by the End of 2022.

“The Office of Budget Responsibility has projected that interest rates would reach 3.5 percent by 2023.

“This may indicate that the end of an era of low interest rates could be near.

It will shock homeowners, he said.

If you have bought a house within the last twelve years, then you’ve only needed a mortgage when base rate was one percent.

Mr van der Heijden went on: ‘The concern is that if the Bank does need to raise rates several times over the next 12-24 months, when homeowners do come to remortgage, prices could be much higher than where they are now.

This rate rise is expected as households’ finances are likely to be affected by higher energy and food prices within the next few weeks and an increase in National Insurance Payments for next year.

“The OBR stated already that this means real household incomes will remain at 2019 levels for the next two years.

To protect their financial security, homeowners with expired deals could resolve mortgage debts.

He added: ‘But for anyone with deals expiring mid-2022 and beyond, there is an expensive watch out; Early Repayment Charges.

These are usually set by your lender, and could run into the thousands. Many homeowners now have to consider whether the exit fees for early remortgages are worth the cost.

Pressure was heaped on governor Andrew Bailey and top officials to act after headline CPI came in at 5.1 per cent yesterday - way above expectations and the highest for a decade

Governor Andrew Bailey was under pressure from top officials and other government officials to take action after yesterday’s headline CPI reading of 5.1% – far above what had been expected and the highest in a decade

Governor Andrew Bailey and top officials increased the level from 0.1 per cent to 0.25 per cent

Governor Andrew Bailey and high ranking officials increased this level from 0.1% to 0.25 %

Peter Kimpton of Family Money is a Personal Finance Expert and said that the changes weren’t the Christmas gift homeowners were looking for.

He explained that inflation spikes are always unavoidable. However, for people with interest-linked mortgages this wasn’t what they wanted as a Christmas gift.

“This is only the second price rise in December for the Bank of England. This happens because it doesn’t make financial sense to give bad news just before Christmas to the entire nation.

“That will of course not make it easier for average UK families to swallow, particularly when you consider existing worries about rising costs, stagnating wages, and the economic effects of the pandemic.

“Today’s news will shock a lot people. This includes the retail industry. People will start to wonder whether they will have to tighten their belts during the time we expected everyone would splurge.

And Head of Corporate Partnerships at Sirius Property Finance Kimberley Gates added: ‘Any increase in interest rates is always going to cause concern from homeowners who will be understandably worried about the implications it might have on their monthly mortgage payments.

“However, you should remember that rates are still extremely low even today and there is no need to flee the country.

The nation’s homebuyers can easily handle any price increase. Many others will be able to lock in fixed rates that they will continue receiving.

“There will be some lender reaction to today’s hike, but it won’t dampen our desire to own a home and the buyers will continue to enjoy some of these lowest rates.

Just moments after the announcement, Santander became the first bank that said it would transfer the entire increase to its customers. It was followed by NatWest and Nationwide.

The rate increase is the first since 2018, but the level is still at the historic lows that have become entrenched since the Credit Crunch

Although the rate rise is the first since 2018, it is still below the Credit Crunch’s historic lows.

CPI inflation figures revealed yesterday were significantly above expectations

The CPI inflation rates revealed yesterday were considerably higher than expectations  

Savers were also left disappointed they would not be seeing a a substantial jump in the rates paid by easy-access and fixed-rate accounts or cash Isas.

Experts gave them a silver lining, saying that there are still many ways to make money.

Their financial advisor advised them that a way to boost their finances was to switch their money from the high street to Isa.

You could also risk your money by investing in the stock market to help protect it.

One expert said the best on the London Stock Exchange at the moment to invest in was Barclays while another said Lloyds was a safe bet.

And a third way to keep making cash was to buy shares in cash rich companies such as InterContinental Hotels because they are insulated from a rise in borrowing costs.

The Monetary Policy Committee voted by 8-1 for the first interests rate hike it has implemented since 2018, meaning borrowing is likely to get more expensive for some mortgage-holders. 

Although the Bank had previously forecast that inflation would reach a peak of around 5% in spring, it has admitted that price increases could triple their 2 percent target for April.

Some economists have been urging the MPC to start increasing interest rates to help prevent an inflationary spiral, but the Bank had been widely expected to wait until the impact of the Omicron strain is clearer. 

The pound rose against the US dollar after the announcement, as sterling became more attractive to investors

After the announcement, the pound rose against USD as investors saw sterling becoming more appealing to them.     

The FTSE 100 was also up marginally on the day following the interest rate news

The FTSE 100 also rose marginally in the wake of the news on interest rates

According to the Bank’s minutes, it downgraded its fourth-quarter growth outlook from 1 percent in the prior forecast.

According to it, “Most of the Committee deemed that an immediate small increase in the Bank Rate was necessary.”

The uncertainty about Covid developments meant that the decision reached at this meeting was not easy.

“It is worth waiting for more information about Omicron’s potential escape from current vaccine protections as well as the first economic consequences of this new wave.

“There were, however, strong arguments for tightening the monetary policy now given current inflationary pressures. This is to preserve price stability over the medium-term.

This move follows a US Federal Reserve announcement that it will accelerate its credit tightening in the wake of inflation hitting a 40 year high in November. 

The announcement quickly saw Sterling rise, gaining 1.1% against the US dollar, to 1.336, as well as 0.7% against Euro, to 1.181. The FTSE 100 index also saw a slight increase.

Since March 2013, the UK’s base rate was at 0.1%, after the Bank intervened to support the economy during the initial stages of the pandemic.

This is the first rate increase since August 2018, and only the third since 2008’s financial crisis.  

How inflation affects both families and public finances 

The greatest threat to the economy is inflation.

Extreme cases have seen panic erupt and spiral out of control.

After the US dollar was converted to mark in 1921, the value of the mark rose from approximately 90 marks per dollar to 7400 marks in 1921. The German Weimar Republic collapsed.

The monthly inflation rate in Zimbabwe was estimated at 79.6billion dollars per month between 2008-2009.

While inflation is now a distant memory for Britons, who are used to low interest rates and steady prices, it was a source of chaos in Britain in the 1970s.

In 1975, the rate rose to an alarming 25% due to deregulation in the mortgage market and the rise of credit cards.

As the prices were increasing so rapidly, many people rush to get goods after work.

Because of the pressure on salaries to keep up with inflation, there were many strikes.

The economy fell into recession and unemployment rose. To control this surge, the government raised interest rates.

This resulted in mortgage interest payments that soared to double-digit levels.

As a consequence, servicing the national credit became a problem. 

This morning, the Bank had more to think about as an closely-followed indicator suggested that growth was at a 10-month low.

IHS Markit/CIPS Flash UK Composite PMI had a reading at 53.2. Anything higher than 50 indicates growth.

It compares to November’s 57.6 reading, which would have been the lowest score since February. 

An earlier warning by the International Monetary Fund this week was that the Bank shouldn’t delay efforts to stem the rise in costs. 

Rising prices have been piling pressure on the Bank to raise rates – hitting borrowers – but a hike could derail the UK’s fragile economic recovery from Covid. 

When inflation exceeds 2 percent, the Bank will usually increase the base rate. High rates encourage families to save and businesses to spend less, which helps to maintain a tight grip on the prices.

There are fears that Omicron Covid’s variant could keep workers from home and Christmas revellers away, so a hike may be necessary to halt recovery.

MPC stated that while the MPC expects that global GDP will remain at the same level as in last month’s projection for the fourth quarter, consumer price inflation has ‘risen more than expected’.

It added that the Omicron variant of coronavirus – which has spread rapidly over the past month – poses downside pressure on economic activity at the start of next year.

According to Bank officials, they also have reduced their expectations regarding the UK’s fourth-quarter GDP by about 0.5% in comparison with the Bank meeting before. GDP is now around 1.5% below the pre-Covid level.

It stated that disruptions in supply chains and labour shortages have continued to limit growth in many industries.

The Omicron variation, as well as additional measures by the UK Government or Devolved Administrations, together with voluntary social distancing, are expected to have a negative impact on the GDP for December and 2022 Q1.

Suren Thiru of British Chambers of Commerce was head of economics and said this step was “surprising” given the recent rise in Covid cases.

According to him, “The Bank of England’s unexpected decision to raise interest rate was remarkable given the mounting uncertainty regarding the economic effect of Omicron variant,”

‘While today’s rate increase may have little effect on most firms, many will view this as the first step in a longer policy movement – not as a partial reversal of last year’s cut.

“Policymakers face a difficult trade-off between rising inflation and a slowing recovery. However, the current spike in inflation is largely driven by global factors. Higher interest rates won’t stop further inflation increases.

“It is crucial that both the Supply Chain Advisory Group of the Government and the Industry Taskforce provide practical solutions for the labour and supply shortages which continue to fuel inflation.

“Without real improvement in the situation supply chains currently face rising prices are likely continue to be a problem even with monetary policies responses.”

Hargreaves Lansdown’s senior investment and market analyst Susannah Streeter said that “The Bank of England has put out an anchor to stop the rapid currents of inflation leading the economy into even more dangerous waters.” 

“The rise in interest rates to 0.25 percent, which raises the cost of borrowing costs, is intended to dampen down demand. It also risks sending already fragile sectors off track. 

“Policy makers see rampant inflation to be an even greater threat, as the CPI readings this week show that prices have already been accelerating at levels unpredicted until next spring. 

“Rather than waiting for the next covid cloud to pass, they have taken action immediately to avoid an even more sharp spiralling upwards in prices.” 

The Bank was given more food for thought this morning as a closely-followed index suggested growth is at a 10-month low this month

More food for thought was provided to the Bank by a closely followed index suggesting that growth has fallen to a 10-month low.

Experts were split on how to proceed with the Bank’s decision before it was made.

Julian Jessop of Institute of Economic Affairs, a think-tank said the Bank’s credibility was at stake if they don’t act quickly to reduce inflation expectations. 

He stated that Omicron appears more likely than any other to contribute to inflation by disrupting supply chains and increasing demand.

Yael Selfin (chief economist, KPMG) said, “We expect the Bank of England will adopt a wait–and-see approach to this week’s meeting. It allows for more time in order to assess the net effect of the Omicron variation on growth and inflation.

Ms. Selfin predicted that inflation would rise once again in December and reach a peak of over 6 percent in spring.

“The recent setbacks in the development of the pandemic may put further strain on supply chain, with inflation forecast to hit just under 6 percent in April. She stated that supply shortages over the Christmas period and worsening delivery times could cause inflation to rise to 5.6% in December. 

According to the Office for National Statistics (ONS), November’s inflation rate saw the greatest impact on transport. This was because the cost of petrol and used cars went up. In November, the average petrol price reached 145.8p per gallon. This is an increase of 112.6p in a previous year.

The shortage of electronic chip used in new cars has caused prices to rise for second-hand vehicles.

As families started Christmas shopping, the prices of toys, games, and other hobby items rose. Inflation in food, clothing, and household goods was also much higher than usual.

Following the IMF’s prediction that UK inflation would rise to 5.5% by spring, these figures were provided by the ONS. This is the highest rate since the early 1990s.

Many could find it difficult to manage their budgets due to the rise, so the IMF cautioned the Bank of England not to ‘inaction’.

Kevin Brown, a savings specialist for Scottish Friendly, stated that the cost of living continues to rise faster than predicted by most economists and the Bank of England.

“Inflation in Britain is poised to hit its highest point in 30 years by 2022, but Omicron’s looming threat means that it is unlikely the Bank will raise interest rates today to further destabilize the economy and household finances. The Bank may face a difficult task to control inflation when the February rate hike is completed.

“The Bank’s failure to act means British households take measures in their own interests to lower the increasing cost of living.”

Scottish Friendly researcher Mr Brown stated that more than three out of every four families were ‘terrified’ about not being able to afford essentials for winter.