The Bank of England has decided to maintain the Base Rate at 5.25% for another month. This is consistent with the outcome of the last four meetings, marking a pause following 14 consecutive increases in interest rates.
Previously, the Bank was increasing rates to bring down soaring inflation rates, which exceeded 10% in early 2023, well over the government’s 2% goal.
This week, inflation dropped to 3.4%, a slightly larger decrease than financial markets anticipated.
The Bank aims to balance reducing inflation with maintaining overall economic health. Today’s decision to maintain the Base Rate indicates the Bank’s confidence in its inflation management strategy.
Recent trends in mortgage interest rates
Since August 2023, the Base Rate has been stable at 5.25%. Mortgage rates have been on a decline since then until January.
However, an unexpected inflation hike in January caused mortgage costs to rise. This was reflected in the swap rates, which are connected to the cost of mortgages, going up by about 0.3%. As a result, some lenders started increasing their mortgage rates, and this trend continued into March.
The pace of increases has now decelerated this week, with average rates either seeing minimal increases or staying the same. Moreover, the recent positivity around inflation has led to a slight dip in swap rates.
For context, the average 5-year fixed mortgage interest rate has dropped from 6.08% in July 2023 to 4.85% this week, and the 2-year fixed rate has decreased from 6.61% to 5.23%. Our site provides weekly updates on current average mortgage rates for different terms and deposit amounts.
Expert opinions on mortgage rates
Mortgage specialist Matt Smith comments, “While we’re not seeing a decrease in the Base Rate today, the likelihood of a future rate drop is high, and it’s more a question of ‘when’ rather than ‘if’ it will happen from the current 5.25% level.
“Mortgage rates have seen a small rise over the past six weeks, but the urgency for lenders to raise rates seems to have lessened, with some reacting to the recent positive inflation news with rate cuts. This could signal that average mortgage rates might start decreasing in the coming weeks, marking the first reduction in over a month.
“However, those looking to move homes shouldn’t expect a swift slash in rates. Yet this week’s news should bring more confidence than at the start of the previous year. Following the first quarter of the year, there’s a noticeable increase in home purchasing inquiries, more sellers entering the market, and a rise in agreed sales compared to the same period last year,” Smith adds.
Implications for current mortgages
Any changes in the Bank’s Base Rate can affect the interest you pay on loans, including your mortgage. If you have a fixed-rate mortgage, your monthly expenses will not alter until your deal concludes. For those with variable-rate or tracker mortgages, your monthly charges won’t change due to this month’s Base Rate hold.
Those nearing the end of their fixed-rate mortgage agreement are likely exploring what rates they may secure next.
Using a mortgage calculator is a handy way to estimate potential borrowing amounts. You can also apply for a Mortgage in Principle for a more tailored outcome and move closer to securing a mortgage deal.
The Mortgage Charter, launched in July 2023, offers support for those struggling with their mortgage payments or those approaching the end of their fixed rates. The Charter permits borrowers to secure a new deal up to six months before their current one concludes. Plus, you can request a more advantageous like-for-like deal with your current lender up to two weeks before you start a new term if a better offer is available.
For more details on what to consider when choosing a mortgage rate, head to our article comparing the pros and cons of 2 or 5-year fixed terms.
Projections for interest rate reductions
The Bank of England’s Monetary Policy Committee meets roughly every six weeks to decide on the direction of interest rates.
While current indicators suggest that the Base Rate has plateaued, it is likely to remain unchanged into 2024 before a potential decrease. Typically, after a period of rate hikes, rates tend to stabilize before reducing. Late in 2023, market forecasts were suggesting that the first decrease in the Base Rate could occur as soon as late Spring 2024. However, according to the Bank of England, an early rate cut could be premature, and a significant reduction in inflation is still needed to meet the 2% target. It now appears that, absent any significant economic disturbances, the Base Rate might start to lower by the end of 2024 and continue decreasing into 2025.
As usual, these projections could shift depending on broader economic conditions.
The upcoming interest rate decision will be revealed at 12 pm on 9 May 2024.
