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The Bank of England lifted interest rates by 0.25 per cent at the latest rate-setting monetary policy committee meeting.
The cost of borrowing now stands at 5.25 per cent - more than the highest rate since the global financial crisis in 2008.
The rise marked the 14th increase in the BoE’s official interest rate in as many months.
The nine-man committee voted six in favour of the increase and two doves wanting the rate to stay at 5 per cent, with one abstention.
The BoE warned rates could go higher, saying the committee will ‘ensure the bank rate is sufficiently restrictive for sufficiently long’ - and that rates could stick around 5 per cent until 2025.
The committee meets again on September 21.
Chancellor Jeremy Hunt says the Bank must stick to its anti-inflation plan.
“If we stick to the plan, the Bank forecasts inflation will be below 3 per cent in a year without the economy falling into a recession.
“But that doesn't mean it's easy for families facing higher mortgage bills, so we will continue to do what we can to help households."
Some buy-to-let specialist lenders moved to change their rates before the BoE meeting.
Paragon Bank cut the rate by 0.15 per cent on a limited edition five-year fixed rate, five per cent fee buy-to-let mortgages. The new rate for green homes with an Energy Performance Certificate rating of at least C is 5.6 per cent for houses or flats, from 5.65 per cent for single self-contained homes to 5.85 per cent for houses in multiple occupation.
The bank will lend up to 75 per cent loan-to-value, and the offer includes a free valuation. Portfolio landlords with four or more investment properties can apply as a company or individual.
The bank’s commercial director Louisa Sedgewick warns the deal may quickly disappear.
“With the swaps market continuing on its recent run of relative stability, we’re in a position to pass this on to customers, further reducing rates on our 5 per cent fee products,” she said.
“To reiterate what I said when we launched these now reduced limited edition products, the fluidity that has characterised the market this year means that lenders sometimes have to respond to abrupt changes, so products may not be available for long.”
Landinvest slashed rates across their buy-to-let mortgage range, with new rates starting from 4.54 per cent at 75 per cent LTV.
The rising cost of living is the primary driver of high-interest rates.
The Bank of England controls inflation, keeping the rate between 2 and 3 per cent.
Currently, the rate is 7.9 per cent.
Economic theory suggests increasing interest rates makes borrowing more expensive and means people have less to spend, which takes the heat out of the rising cost of living and allows inflation to settle at a lower level.
The Bank of England’s official interest rate - the rate banks charge each other for transactions - is set by a group of experienced bankers and economists on the bank’s monetary policy committee. The committee meets on the first Thursday of each month.
Buy-to-let mortgage lenders are free to set their interest rates. The official interest rate is a handy reference point, but lenders generally charge the rate plus a margin expressed as ‘the BoE rate plus 1.5 per cent’.
If the official rate is 5.25 per cent and the lender adds a 1.5 per cent margin, the actual rate is 6.75 per cent.
The Bank of England started cutting interest rates in the aftermath of the global financial crisis 2008, then again after the Brexit referendum and coronavirus pandemic.
For many years rates sat at a record low of 0.1 per cent.
Since 2021, rates have gradually increased to the 5 per cent mark.
