The move was widely predicted by most economists and a welcomely smaller increase than July's 0.5% rise, potentially signalling that price rises have begun to ease.
Nevertheless, even at 0.25%, the effect on millions of mortgage holders, particularly those on variable or tracker mortgages, or anyone who is looking for a new fixed-rate mortgage, will be hard to swallow amid an ongoing cost-of-living crisis.
As you would imagine, the property industry was quick to react. Here's what they're saying:
Paresh Raja, CEO of Market Financial Solutions, said: “That the base rate now resides above 5% is not in itself a significant issue; this was, of course, the norm before 2008. But the fact the jump up from a meagre 0.1% has come in a relatively short space of time (since December 2021) has offered borrowers, investors and businesses little time to adapt to higher rates.
“Positively, looking ahead, economists are suggesting the base rate may not rise as high or as quickly as once thought, and the rates available on products are starting to reflect that. Today’s hike shows that – perhaps counter-intuitively for borrowers, even though the base rate rose, there is some good news in that the jump was smaller than previously predicted, allowing lenders to reassess their rates accordingly.
“But right now, flexibility and communication from lenders remain of utmost importance, helping both existing and prospective clients to borrow responsibly without pulling products out from under them or being too rigid in the terms of loans. The market will realign to a higher base rate in due course, but today’s latest hike from the Bank of England reaffirms that lenders must double down on a proactive approach to supporting property owners and property buyers who will feel the effects of it.”
Jatin Ondhia, CEO of Shojin, said: “It is more of the same for now, but there is a sense that we might be nearing the top of the interest rates mountain. Inflation is finally falling, with the next set of data on 16 August expected to show another notable decline. In turn, pressure will ease on the BoE, meaning it can slow or pause on its hiking of the base rate. All of this would allow for much-needed stability and hopefully a bit of confidence to return.
“Still, we cannot underestimate the implications of elevated borrowing costs across the property market. Homeowners are facing higher mortgage rates than at any point since the financial crisis, while developers are also finding it harder to access finance.
"Consumers, investors and businesses will all be hoping that we are nearing the end of this economic turbulence – higher interest rates are here to stay, but we undoubtedly need to arrive at a point where the base rate is not continuously rising, giving everyone the chance to take more confident action where their money is concerned.”
Simon Gammon, Managing Partner at Knight Frank Finance, said: "Today's rise in the Bank Rate has been priced in for some time and we expect lenders to continue making small cuts to mortgage rates during the coming weeks. Inflation data published later this month will be far more important for the path of mortgage rates and, barring any surprises, it's likely that the peak in fixed-rate mortgages has passed.
"Tracker rates are still quite a bit cheaper than fixed rates, despite today's rise, which is driving elevated levels of remortgaging activity. Many borrowers are now opting for tracker products with a view to fixing once mortgage rates fall further."
Tom Bill, head of UK residential research at Knight Frank, said: “Today’s rise was priced in and fixed-rate mortgage deals will be unaffected. Tracker rates will rise but the growing popularity of these deals shows there is a belief that the bank rate is near its peak.
"It has been a bumpy ride back to normality for interest rates, with the previous government doing too much too quickly and the Bank of England arguably doing too little too late, but the last 14 years of ultra-low rates will increasingly be seen as the exception rather than the rule.
"Some lenders are cutting rates and as inflation continues to fall, sentiment in the housing market will improve. That said, downward pressure on prices and transaction volumes will continue into next year as more people roll off fixed-rate deals and while the market is not on its knees, demand will remain subdued through to the next election.”
Anna Clare Harper, CEO of sustainable investment adviser GreenResi, says: ‘‘This rise in interest rates means that two million households with mortgages on variable rates, or with their fixed rates coming to an end this year, face even higher monthly mortgage payments.
"The impact cannot be understated: the cost of housing will be closer to, or even above, net incomes for many householders.
"We can expect to see many of these property owners selling up for lower prices. Investors we work with are currently buying at 20 to 30 per cent below peak 2022 house prices, though it is worth noting that peak values reflected a mini-bubble from reduced stamp duty combined with very low-interest rates through Covid.
"Despite price reductions, housing is no more affordable today, since higher interest rates also affect potential property purchasers. This means demand for rental properties is likely to continue to grow, making rents ever higher.’
Alex Lyle, director of Richmond estate agency Antony Roberts, says: ‘Yet another interest rate rise, coming on the back of so many and with the potential for more to come, creates further uncertainty for the housing market.
"Although some areas have proven remarkably resilient to rising interest rates, inevitably this is less the case the higher they go.
"This latest rate rise will give those buyers who were perhaps wavering another excuse to back out. Many buyers and sellers are already sitting tight until the autumn in the hope that the situation will be clearer by then, particularly if inflation continues to fall."
