How much does a quarter-point base rate rise actually add to a tracker mortgage payment? The worked example below answers that question with one household's figures, taken through every step of the arithmetic.

The figures are illustrative: a reader's own balance, margin and term will differ, though the same steps apply once those numbers are put in.

The inputs

• Outstanding mortgage balance: £180,000, interest-only
• Tracker margin: base rate plus 1 percentage point
• Base rate before the decision: 5.00 per cent
• Base rate after the decision: 5.25 per cent, the level set at the MPC's August 2023 meeting

Working through the change

1. Before the decision, the tracker rate is the base rate plus the margin: 5.00 per cent plus 1 percentage point gives 6.00 per cent.
2. Monthly interest at that rate is the balance multiplied by the rate, divided by twelve: £180,000 × 6.00% ÷ 12 = £900.
3. The MPC raises the base rate by 0.25 percentage points, to 5.25 per cent, so the tracker rate becomes 5.25 per cent plus 1 percentage point, which is 6.25 per cent.
4. Monthly interest at the new rate is £180,000 × 6.25% ÷ 12 = £937.50.
5. The payment rises by £937.50 minus £900, which is £37.50 a month, or £450 over a year, for as long as the base rate stays at 5.25 per cent.

That £37.50 comes entirely from the 0.25 percentage point move: multiply the outstanding balance by the change in rate and divide by twelve, and the same working scales to any balance or any size of move. On a balance of £360,000 the same 0.25 point rise adds £75 a month, because the balance has doubled and the rate change has not.

A repayment mortgage (capital and interest) moves by a similar amount at first, though the lender recalculates the whole monthly payment against the remaining term. See how a base rate change reaches your money for the route this figure takes before it reaches a statement, and why it lands within one to two payment cycles.