The Bank of England has increased the base interest rate from 0.5% to 0.75%. This is only the second time that the base rate has been raised since the global financial crisis a decade ago. This base rate increase will impact almost every aspect of your personal finances, from the cost of your mortgage, to the interest gained on your savings, to your credit card APR.

Here are the key details of the Bank of England’s base rate increase to 0.75%:

Unanimous vote to raise the base rate

The Bank of England’s Monetary Policy Committee (MPC), a panel of nine expert financiers chaired by governor Mark Carney, voted unanimously to raise the base rate to 0.75%.

The main reason to increase the base rate is to moderate economic growth, which in turn can control inflation. After the Beast from the East depressed consumer spending in the first part of the year, the Bank of England is now convinced that the British economy is regaining strength – and thus it’s increasing the base rate to prevent inflation.

The Bank of England’s inflation target is 2%, but current inflation is around 2.4% – which means the base rate is likely to rise again in the future. It isn’t clear when that will happen, but governor Carney says it will be very gradual – likely by no more than 0.5% per year. The central bank also admits that the country’s financial outlook could be “influenced significantly” by our withdrawal from the European Union next year.

Act now if you have a variable rate mortgage

The biggest impact of a base rate rise is an increase in the cost of borrowing – and, if you have a mortgage, you are probably borrowing hundreds of thousands of pounds from a bank.

The first thing to do, if you don’t already know, is to find out what interest rate you’re currently paying on your mortgage. If you’re on a fixed rate mortgage, then great. If you have a variable rate mortgage – a tracker mortgage, discount mortgage, or the lender’s standard variable rate – then your mortgage payments will almost certainly go up over the next month or two.

An increase of 0.25% to your mortgage rate equates to an extra £14 per month per £100,000 of mortgage. So if your outstanding mortgage is £300,000, you’d pay another £492 per year in interest. If the base rate goes up another 0.25% – which could happen later this year – then you’d pay an extra £83 per month for your mortgage, or almost £1,000 per year. If you have a larger mortgage, the numbers are even worse.

If you have a variable rate mortgage, now is a very good time to shop around and see if you can find a better fixed rate mortgage deal. If you have a competitive tracker or discount mortgage, you might not save much by switching to a fixed rate mortgage. But if you’re on your lender’s standard variable rate (SVR), your interest rate is probably very high already, and you can likely save thousands of pounds per year by remortgaging.

If you’re currently within a mortgage’s introductory period, bear in mind that you might not be able to remortgage without paying an early repayment charge (ERC). Talk to your lender if you uncertain about any ERCs on your mortgage.

If you haven’t changed your mortgage in a long time, it might be helpful to read our complete mortgage guide – and then find out the maximum mortgage you can afford.

Now read: Should you renovate your home or move?

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