Any change in interest rates inevitably creates winners and losers.  Savers have endured a long period of low returns, so many will welcome a change of direction after more than a decade.  But borrowers, both those with mortgages and other types of loan, may see see an increase in repayments.  For mortgage borrowers particularly, the effects, however, may not be immediate.

In July, we published an article explaining some of the factors that determine mortgage pricing, and analysing the extent to which borrowers could be affected by a Bank of England base rate rise.  Nonetheless, it is worth remembering that while base rate is clearly a strong influence in mortgage pricing, it does not necessarily translate into a like-for-like change in borrowing rates.  The same is true for other types of credit, and for savings rates.

Mortgage market data over the last decade or so shows that, while the base rate is clearly an important component of pricing, it is not the only thing that matters.  Mortgage rates fell sharply in response to the dramatic series of reductions in base rate to 0.5% by March 2009.  Since then, however, the base rate has remained unchanged (apart from a further small cut to 0.25% in August last year) while mortgage costs have continued to decline significantly - with rates on new loans halving over that period from more than 4% to around 2%.  Costs fell, then, not because of further changes in base rate but because there was a significant increase in the availability of funding and in lender activity.  That contributed to a fall in borrowing rates.

So, now that we have the first increase in base rate for more than a decade, how will borrowers be affected?  The first thing to note is that many borrowers will see no immediate change.  More than half of all outstanding regulated mortgages are on a fixed rate, and more than 90% of new borrowers are currently choosing this option.  These customers should see no change in what they pay until their current deal comes to an end.

What happens to borrowers on variable rates will depend on their mortgage terms and conditions, and how lenders choose to respond to the base rate rise where they have flexibility to do so.  Those on mortgages that track base rate can expect to see an increase - but the average tracker rate, at 1.73%, is currently considerably lower than for any other type of mortgage.

Borrowers paying the standard variable rate may also face an increase, depending on how their lender responds to the rate rise.  But these customers typically have lower outstanding balances - with an average of £91,000, compared to £141,000 for those on fixed rates and £131,000 for trackers.

Whether mortgage borrowers face a rate rise sooner or later, we expect the overwhelming majority to be able to manage the adjustment to their household finances.  The clear message for those who experience any difficulty, however, is to speak to their lender at the earliest opportunity - the lender will help them work out a personalised plan to get their finances back on track.

A good indicator of the ability of borrowers to manage a rate rise, however, is the rule requiring lenders to 'stress test? a customer's mortgage to ensure it remains affordable - even if the rate rises to at least 3% above its current level over a five-year period.  That is a much more rapid rate of increase than the Bank or any other commentator is expecting.  And, although the 3% stress testing rule only came into effect in 2014, the Financial Conduct Authority has said that, before then, most lenders were applying more rigorous stress testing - to even higher interest rates.

Meanwhile, the Bank has long signalled that, when rates begin to rise, they will do so slowly.   As recently as September, Bank governor Mark Carney reinforced this message when he said that rate increases ?can be expected to be at a gradual pace, settling at levels significantly below those seen pre-crisis.?

Finally, while the focus of this blog is primarily on the mortgage market, the rate rise is clearly going to affect other borrowers and savers.  Having endured low returns for some time, savers are likely to welcome the increase.  In recent years, lenders have made it easier for customers to compare and switch savings products, and these improvements will help customers shop around for the best deal as interest rates rise.

Most borrowers with personal loans typically pay a fixed rate, so those with existing commitments should be largely unaffected.  For business customers, meanwhile, the impact of a rate rise will be shaped by the balance between any money they hold on deposit and their level of borrowing.  But more than 60% of small and medium enterprises do not have any external finance - and so will be unaffected by any upward movement in rates from these sources.