The Monetary Policy Committee of the Bank of England has agreed to raise interest rates by 0.5 per cent to 2.25 per cent.

The vote was a 5-4 majority and reflects differing opinions amongst the committee - five members voted to raise base rate by 0.5 per cent; three members wanted a larger 0.75 per cent hike; and one wanted a smaller 0.25 percentage points. 

Tim Bannister, Rightmove’s analyst, says: “Although the majority of people are on fixed rate mortgages, there’s a looming concern for those with their terms due to end over the next six months or so as interest rates continue to creep up. It’s likely that those who choose to fix again will find that rates have doubled in some cases since they last locked in, and so despite paying down some of their debt they could find their new monthly mortgage payments are higher, even if they’ve moved into a lower LTV bracket and have built up equity. They will now face the tough decision of moving to a tracker mortgage in the hope that interest rates drop again soon, or taking another fixed deal for a bit more certainty on their outgoings.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “From our experience on the ground, the impact of the interest rate rise will be felt most with regard to confidence to move and take on debt. The increase will impact first-time buyers and new borrowers particularly, bearing in mind approximately 80 per cent of borrowers are on fixed rates. 

“However, with UK Finance forecasting that 1.8m deals are due to end at some point next year, there will be plenty of borrowers looking for new mortgage deals at a time when rates are likely to be considerably higher. Although rates are still low compared with their historical average, the impact is exacerbated by continuing worries about inflation and the economy generally.

“The longer the climate of higher interest rates persists, the more likely it is that people will consider selling, leading to a softening in prices. However, it is worth remembering that around 50 per cent of homeowners are not dependent on mortgage finance at all so will be unaffected.”

Tomorrow the new Chancellor, Kwasi Kwarteng, will set out details of a so-called government growth plan, estimated to cost up to £150 billion. Prime Minister Liz Truss has vowed to cut taxes, including a possible stamp duty cut as well as undoing the rise in National Insurance brought in by her predecessor Boris Johnson. She has also said she would temporarily scrap green levies on energy bills, in a bid to bring down prices for consumers.