HOUSING costs continue to rise for homeowners and renters.

Last week the Bank of England increased its base lending rate from 1% to 1.25%. The base rate affects the pricing of residential mortgages and loans.

This was a decision by the bank’s monetary policy committee (MPC) – six members voted for a quarter percent increase while three backed an increase to 1.5%. The base rate was only 0.1% until last December when it was raised to 0.25%. The direction of travel is now sadly upwards and that means more expensive loans.

There are 11 million households in the UK with a mortgage. Consumer behaviour has changed since the financial crisis in 2008 with more homeowners taking out fixed rate mortgages over a set period of time to avoid future price hikes.

From the Financial Conduct Authority’s data, 41.5% of mortgages in 2010 were fixed rate – by last year that figure had climbed to 94%.

UK Finance says the majority of people taking out a fixed rate do so on a five-year basis, with others opting for a two-year deal.

This means if you’ve recently taken out a new five-year fixed rate deal you won’t see any price increases until the end of your term. For those coming out of fixed rate deals the price change will be significant.

For example, a typical high street bank was offering fixed rate mortgage deals at 1.6% two years ago. Before last week they were offering similar deals at 2.7 to 3%. The 2.7% re-mortgage came with a £1000 product fee, while the 3% deal had no fee.

From last week the same bank is now offering fixed rate deals of 3.14% with no fees.

On a mortgage of £125,000, this represents a £90 increase per month in payments. A household with a “tracker” mortgage of £150,000 will have noticed a monthly increase in their mortgage of £83 from last year. Those on “standard variable rate” mortgages – the bank’s default rate – will have noticed similar increases. Each month, between 70,000 to 80,000 people in the UK re-mortgage or take out a first mortgage – that’s almost 1m households each year.

If you’re due to take out a new mortgage the safest option may be to opt for a five-year fixed rate deal on the basis many economists predict further base rate rises. You can generally lock into a new deal a few months before your existing deal is due to end.

The Bank of England is tasked with trying to keep inflation at 2%. Unfortunately, inflation is now at 9% and is expected to rise above 10% when Ofgem increases its energy price cap in October. Increasing the base rate is an attempt to cool inflation, by reducing people’s disposable income.

That may seem counterintuitive in a cost-of-living crisis when the pound in your pocket is now worth 90 pence and you haven’t had a pay rise.

Michael Saunders, a member of the Bank of England’s MPC, said in a speech in May he didn’t expect inflation to fall to 2% for three years. It’s going to get worse before it gets better.

While Scotland can’t do much about UK monetary policy or the external drivers of inflation, we can do something about the plight of private renters.

According to Citylets, average rents in Scotland in the private rented sector (PRS) increased by 8.5% year-on-year.

In Edinburgh, average rents rose more than 14% annually, reaching £1214 per month, while Glasgow had increases of 16%, with rents of £972. Dundee’s rents were £722 with a 12.5% year-on-year increase.

The number of private tenants living in poverty has increased by 75% over the past decade according to Scottish Government statistics. Data for 2014 to 2017 shows that 280,000 people were living in relative poverty in the PRS. The number of private renters in severe poverty after housing costs rose by two thirds in the same period.

The solution for Scottish Labour MSP Mercedes Villalba is an emergency interim rent freeze: “In the last year alone, average monthly rents in Scotland increased by over 8%. Since then, double-digit inflation has hit. We must be clear about what we are facing – this is a cost-of-living emergency, and it requires emergency action.

“That is why I am calling for an emergency rent freeze to be brought in through the Covid Recovery legislation this month. Because those on the lowest incomes did not cause the current crisis and, if our recovery is to be fair, we cannot allow the poorest to be made to pay for it.

“Freezing rent will save tenants money, combat inflation, and have an immediate impact on the cost of living. Scottish Ministers have this power, I am calling on them to use it.”