Interest rates: How does the Bank of England's 3% hike affect mortgages, rent and savings?

The biggest interest rate rise since the 1980s was unveiled by the Bank of England on Thursday in a bid to control surging inflation.

It sees the Bank’s base interest rate rise from 2.25% to 3%, the highest since 2008.

When interest rates rise, it means you pay more interest on money you borrow, such as mortgages and bank loans, so higher interest rates has a knock-on-effect on the cost of living.

Here's what the 3% rise could mean for you.

Mortgages

A rise in interest rates is passed on from lenders to the borrower, meaning the nearly-third of households in the UK who have a mortgage will feel the impact first.

Those on variable rates deals (which make up around 75% of all mortgages) are likely to see an immediate increase in their monthly payments.

Those on tracker mortgages - a type of variable rate around two million people in the country are on - will also see their monthly repayments rise.

For the majority on fixed-rate mortgages, there will be no immediate change, but anyone applying for a new fix-rate deal - such as new house buyers or those hoping to remortgage - will face higher prices.

According to the Nationwide Building Society, the average homeowner looking to refinance the average mortgage will pay £220 a month more now than they would have done a year ago.

Nationwide calculates that mortgage repayments for a prospective first-time buyer, earning the average wage, have risen from 34% of their take-home pay to 45% in just a few months.

Renting

Renters are also likely to be indirectly affected by the interest rates rise, as buy-to-let landlords pass on higher borrowing costs to their tenants.

Simon Leadbetter, Global CEO of Fine & Country, warned earlier this year "struggling first-time buyers, who already face the greatest hurdles in the housing market, may find themselves trapped in expensive rentals for even longer."

The hike could also mean landlords choose to sell their properties to avoid sky-high mortgage repayments. This could worsen the supply of rental properties in cities like London, where is already a chronic shortage of available properties to rent compared to demand.

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Savings

Savings rates are on the rise, which is in theory a positive thing for those putting money away, as their savings will earn more interest each year.

But as the cost-of-living soars, many people are struggling to save anything at all, while others are being forced to spend their savings to keep up with inflation.

And savers can lose real terms value on the cash they have in the bank thanks to the gap between interest rates and inflation - currently at 11.6%.

Food prices

While the rise in interest rates does not have a direct impact on food prices, the rising cost of borrowing money could indirectly mean the cost of food goes up for shoppers.

This will mean households feel the pinch even more, on top of soaring mortgage or rent payments.