The Bank of England has warned households to expect interest rates to rise over the 12 months but also predicted living standards will be squeezed by higher inflation and sluggish wage growth.

The Bank’s rate-setting committee voted by 6-2 to leave official borrowing costs at their all-time low of 0.25%, according to minutes from their meeting released on Thursday.

But the Bank appeared to suggest that households and businesses should not expect borrowing costs to stay at their record low for much longer.

The minutes said: “If the economy were to follow a path broadly consistent with the August central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the path implied by the yield curve underlying the August projections.

“All members agreed that any increases in Bank rate would be expected to be at a gradual pace and to a limited extent.”

Given the current political and economic uncertainty, it is clearly not a question of if, but when will rates eventually rise, which will have implications for homeowners, as highlighted by Richard Sexton, director, e.surv.

He said: “It’s interesting to consider that for many current mortgage holders, they have never experienced a rate rise and the impact of any payment shock is unknowable at this time.

“Low interest rates coupled with rising house prices have led to borrowers struggling to save deposits, and instead many are having to borrow larger amounts of money to get onto the housing ladder.  

“e.surv’s latest Mortgage Monitor shows that June was the fifth successive month where large deposit borrowers accounted for less than 35% of the overall market. With more people taking on larger loans, an interest rate rise will be felt first in this segment of the market.” 

Ishaan Malhi, CEO and founder of online mortgage broker Trussle, agrees that the Bank of England’s decision to hold interest rates has “direct implications for every household, positive and negative”.

He continued: “For existing homeowners, sustained low interest rates are good news because they keep mortgage repayments level. In this situation, we’d recommend borrowers review their mortgage to check if they’re on the right deal, should switch to a more competitive fixed rate deal, or even begin making overpayments to bring down their overall debt burden.

Taking the time to review your mortgage is essential, especially as an estimated two million mortgage borrowers in the UK are on Standard Variable Rates, overpaying an average of £4,900 per year compared to a market leading deal.

“For those saving for a deposit, sustained low interest rates are bad news since their savings will continue to grow slowly. The glimmer of hope, particularly for first-time buyers, is that housing prices have begun to slow making some areas that were previously unaffordable more accessible.”