Nearly two thirds of homeowners will face higher mortgage repayments after the Bank of England increased interest rates for the fourth time in less than a year this week, taking the base rate to a six-year high of 5.5 per cent.

A homeowner with a £200,000 repayment loan will pay an extra £31 a month, or £372 a year. But even those on fixed rates will not escape the mortgage pain.

Mform.co.uk, the mortgage comparison website, estimates that more than 2.3 million borrowers will come to the end of fixed-rate deals this year. Since interest rates are now three quarters of a point higher than two years ago, when the bulk of the loans were taken out, borrowers will struggle to find a new fix as low as their previous one.

Savers, meanwhile, should be smiling – the rate rise translates into higher returns. But watch out for the tricks employed by banks and building societies to short-change savers.

Follow Times Money’s guide to minimise the pain and maximise the returns from the base rate rise.

Borrowers with a variable-rate mortgage

In the short term, borrowers locked in to variable-rate deals will have to take the extra cost on the chin. But those in a tracker deal are at an advantage, as their interest rates are guaranteed to rise by no more than a quarter-point.

Borrowers locked in to a discounted variable-rate loan, which tracks their lender’s standard variable rate (SVR), and those on deals pegged to it, could be in for a shock. Some lenders may increase their SVR by more than a quarter of a point, dragging mortgage rates even higher.

When deciding how to proceed, first check the cost of withdrawing from your current mortgage early. A heavy early redemption charge (ERC) could wipe out any savings from remortgaging. It may be worth asking if your current lender can switch you to a lower-rate deal. Halifax, for example, allows customers to switch to deals up to three months before the end of the mortgage term, with no ERCs.

Staying with the same lender also means that you avoid valuation fees, which can be more than £300.

Borrowers tempted to flee to the safety of fixed-rate deals are urged to be cautious. Ray Boulger, of John Charcol, the broker, says that the rate rise has already been factored in to current fixed-rate deals, making them more expensive. Those who think that rates may fall in the future would be better off choosing a tracker. He says: “We like Woolwich’s Lifetime Tracker loan, which charges base rate plus 0.18 percentage points. After the latest base rate rise this comes to 5.68 per cent.”

Borrowers locked in to a fixed-rate mortgage

If you are one of the millions whose fixed-rate deal ends this year, your repayments will spiral when your loan reverts to your lender’s SVR. A borrower with a £200,000 mortgage on a 4.5 per cent fix will see repayments rise by more than £350 a month when the rate reverts to the SVR, likely to be about 7.6 per cent.

What you do next depends on what you think interest rates will do in the future. If you think they will rise to 6 per cent or more, it may be worth searching for a fixed-rate deal now. Many lenders allow you to agree a deal between three and six months before you receive the funds. Nationwide, Woolwich and Alliance & Leicester accept applications six months before a mortgage start date.

A word of warning, though, some lenders ask you to pay the arrangement fee upfront and you lose the payment if you decide not to go through with the deal. An alternative would be to ask to add the fee to the capital of your mortgage and, as most lenders allow overpayments, you can repay it once your mortgage has started. Also note that lenders can withdraw mortgage offers, as some did in recent weeks when talk of a rate rise intensified – so be ready to search out another low-rate deal if need be.

Many lenders have already factored in a base rate of 5.75 per cent when setting their fixed-rate prices, so if you think that rates will fall before your deal ends, it is worth hanging on and remortgaging at the last minute. Those who want to take full advantage of falling rates could opt for a variable-rate loan. Alliance & Leicester has a two-year deal at 0.31 points below the base rate, giving a current rate of 4.94 per cent, with a £599 fee.

Savers

Savers should wait before celebrating. While the latest rate increase should take best-buy rates for easy access accounts close to 6 per cent, some banks and building societies fail to pass on the full rate rise to savers. So for the best returns, you may have to switch to a higher-paying account.

Savers should also note that with the retail prices index (RPI) now at 4.8 per cent, a basic-rate taxpayer needs an account paying a gross rate of 6 per cent just to break even. A higher-rate taxpayer would require 8 per cent.

One option is Index-linked Savings Certificates from National Savings & Investments. Its three and five-year certificates pay 1.35 per cent plus RPI, tax-free. This is equivalent to a gross rate of 7.68 per cent for a basic-rate taxpayer and 10.25 per cent for higher-rate taxpayers.

Checking rates is key. Sue Hannums, of AWD Chase de Vere, the independent financial adviser, says: “If your bank has not passed on the full rate rise by June, find a new home for your money.”

CASE STUDY: Happy to be in a fix

James Baddeley and his wife, Vicky, are congratulating themselves on bagging a new fixed-rate deal before Thursday’s rise in interest rates.

They will switch from their five-year fix on a £150,000 loan with Cheltenham & Gloucester in a couple of weeks. James, the deputy chief executive of a charity, says: “We saw how interest rates were rising and did not want to have to fix at a higher rate in a few months’ time.”

The couple also wanted the security of a new fixed rate because Vicky is on maternity leave from her job as a development and marketing officer after giving birth to their first child, Felix, seven weeks ago.

Through Savills Private Finance they obtained a two-year fix at 5.14 per cent with Halifax on their three-bedroom house in Ely, Cambridgeshire. This is a better rate than their current 5.65 per cent fix and means that their monthly repayments, at £1,139, will be only marginally higher than before, despite borrowing an additional £10,000 for home improvements.