Bank of England Holds Interest Rates Steady

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Bank of England Decision: Rates Held at 5.25%

The Bank of England has maintained its base rate at 5.25%, unchanged since August 2023. How will this affect interest rates for mortgages?

Despite expectations for a gradual decrease in interest rates, the Monetary Policy Committee (MPC) has decided otherwise.

Inflation is a key factor in this decision. Although inflation had been steadily declining throughout 2023, there was a slight unexpected increase in December, rising to 4% from 3.9% in November. The target rate is 2%, so the Bank of England is taking this into consideration.

Analysts anticipate a significant decline in the consumer price index (CPI) over the next six months, suggesting that the Bank of England may announce multiple interest rate cuts in 2024. However, these cuts might not materialise until the year’s end.

Several external factors also influence this decision. Strong wage growth could slow down the decline in inflation, while the ongoing conflict affecting the shipment of goods through the Suez Canal may lead to price increases once again.

Bank of England Decision

Paresh Raja, CEO of Market Financial Solutions, commented: “The Bank of England is facing a delicate balancing act. Persistent inflation is making them cautious about reducing rates, yet the increase in company bankruptcies and the broader impact of higher borrowing costs on the UK economy are adding pressure to lower the base rate.

“In any case, it’s becoming clear that the base rate has likely reached its peak, and it’s just a matter of time before it starts to decline. This shift has already begun to affect lenders and the property market in recent months. Mortgage, bridging, and buy-to-let rates have started to decrease, and there are early signs of recovery emerging after two challenging years, with indications that buyer demand and house prices are on the rise.

“The Bank might hold rates steady. They could do this multiple times. They might do so before implementing cuts. The market is already benefiting. This happens as the inevitable decision approaches.”

The Mortgage Market

Despite hopes for a rate cut from the Bank of England, it’s worth examining the recent impact of holding the base rate on the mortgage market.

Research from reveals rate fluctuations. Over the past 18 months, the average two-year fixed-rate mortgage decreased. It went from 6.85% to 5.56%. This occurred since August 2023. That’s when the base rate was first held steady.

In the five-year mortgage market, rates have fallen from 6.37% to 5.18%, with drops in both mortgage types observed since the beginning of 2024 as lenders introduce competitive products.

However, for those on standard variable rates, the news isn’t as positive. The average rate now stands at 8.17%, up from 7.85% in August 2023, making it notably more expensive in most cases.

Depending on your situation, you might secure a mortgage below the average rate. You could encounter added product fees. Buy-to-let mortgage rates have been decreasing. This benefits property investors. The number of available deals from lenders has been increasing.

Rachel Springall, a finance expert at Moneyfacts, commented: “The recent volatility in fixed mortgage rates may prompt borrowers to secure a deal promptly. Some lenders now offer fixed rates below 4%. Lenders can withdraw deals due to a large number of applications. A volatile swap rate market can influence pricing, particularly with tight margins. We’ll likely see both fixed rate increases and cuts as lenders manage demand and expectations.”

Find out more about what’s happening in the property market in our News column.

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