Brokers have expressed their concerns that the Bank of England “is not looking at the wider picture”, following the central bank’s decision to raise the base rate from 0.25 to 0.5 per cent.
The decision was tight, with four members of the Monetary Policy Committee voting for an even higher rise to 0.75 per cent, which many have said could point to another rate hike near on the horizon.
But with rising bills and living costs, some mortgage brokers are concerned homeowners and first-time-buyers are already curbing their spending enough.
"I am seriously concerned that the Bank of England is not looking at the wider picture,” said Scott Gallacher, a Chartered financial planner at Leicestershire-based IFA Rowley Turton.
“The economic theory is that, with high inflation, you increase interest rates to reduce consumer spending and control inflation.
“However, with soaring energy prices and the cost of living crisis, does anyone really think we need to dampen consumer spending?”
Gallacher said higher energy bills alone meant many people were already looking to make cut backs in other areas, making the effect this rate rise will have on some mortgage holders significant.
According to UK Finance, a 0.25 per cent rate change adds £25.76 a month to the average interest rate tracker mortgage, and an extra £15.96 a month to the average standard variable rate (SVR) mortgage.
Over a year, the former racks up £309.12 in extra payments, whilst the latter totals a lesser £191.52. These types of mortgages account for 26 per cent of borrowers.
David Hollingworth, associate director at Bath-based broker firm L&C Mortgages, agreed homeowners were “already digesting” the prospect of further increases to energy bills and “steeling themselves” for higher National Insurance and council tax.
“The most vulnerable to [yesterday's] announcement are those on variable rates, especially SVRs which are substantially higher than the rates available on the open market, often more than 4 per cent,” he explained.
“Some but not all lenders have already followed the December increase and so we should expect they will rise again. That could put another £21 per month on a typical mortgage."
He added: "Not all lenders have made a change yet though, so we could still see some lenders pass on an aggregate increase to SVR of 0.40 per cent in one move.”
Some brokers said those who took advantage of the now wound down stamp duty holiday could be caught out by the rate rise.
Online broker firm Trussle said it could particularly impact homeowners who took out two-year fixed rate mortgages during the tax holiday, and who are now nearing the end of their mortgage terms.
Miles Robinson, head of mortgages at Trussle, said: “In the face of soaring inflation, this latest interest rise has hardly come as a surprise. However, this decision will add further financial pressure to homeowners already facing a cost of living crisis.”
Robinson said at his firm clients are on average saving £3,900 per year by remortgaging.