interest rates BoE interest rate rise bank of england

No surprises as Bank of England holds interest rates at 5.25%

As most investors had already predicted, the Bank of England has once again announced it will hold interest rates at 5.25%, although it wasn’t a unanimous decision.

The Monetary Policy Committee (MPC), which decides on the base rate for the Bank of England, passed the decision to hold interest rates at their current level with a 6-3 margin, with the minority of three suggesting the Bank of England ups its rate once more to 0.25%.

The news will certainly be welcome to many thousands of mortgage holders in the UK, as a sign that while borrowing rates remain significantly higher than they were two years ago, we may indeed have seen the peak already. In fact, many lenders have already been reducing rates over the past couple of months.

Those hoping for a return to the ultra-low rates of the past, or even a significantly lower-priced borrowing landscape to what we see today, may be disappointed though, as the Bank of England has reiterated the fact that current interest rate levels will be here for “an extended period of time”.

Positive signs for inflation?

According to forecasts, the expectation is that inflation levels are set to fall “sharply” at the next announcement in a couple of weeks’ time. While this may not have a direct impact on mortgages, it is likely to mean that financial pressures are eased in many households, and could influence the next rate decision for the Bank of England.

Looking back to the mortgage market, the latest data from Rightmove shows that the lowest available rate for a mortgage with 85% loan to value (LTV) has now fallen down below 5% for the first time since June, while a huge number of other fixed rate products are cheaper than they were a year ago.

For property investors, buy-to-let mortgages are moving in the same direction, which will be welcome news to anyone who is set to remortgage soon, or will be looking for a fresh product for a new investment in the near future.

Bank of England rate: industry reactions

Paresh Raja, CEO of Market Financial Solutions, explains why there is reason for optimism in the housing market at the moment: “With the Bank of England holding the base rate and house prices growing unexpectedly yesterday, there’s room for positivity to return to the property and lending markets.

“Following a challenging 18 months, these reasons for optimism should translate into more favourable products and rates for property buyers in the coming weeks and months.”

“Nevertheless, lenders cannot take their foot off the break when it comes to supporting brokers and borrowers who will still be feeling the harsh effects of the new higher rates environment.

“To help the market return to a more buoyant state, therefore, lenders must recommit to taking a proactive approach to lending – providing clarity and certainty to borrowers wherever possible, allowing them to enter the property market with confidence.”

Similarly, Matt Thompson, head of sales at Chestertons, believes the latest news will have a positive impact on market sentiment overall.

“When the Bank of England announced for interest rates to remain at 5.25% in September, we registered an almost immediate impact on the property market with buyers feeling more confident to move forward with their property search,” he said.

“Today’s news that rates remain unchanged provides at least some certainty that the cost of borrowing won’t increase further for the time being which will likely result in more house hunters entering the market before the year ends.”

Three ways to get the best remortgage rate

Kellie Steed, mortgage expert, points out that while the latest mortgage rate drops are certainly a good thing, rates are unlikely to fall back to the 1-2% levels that many borrowers had become used to, even when the Bank of England does begin to drop its rate.

She suggests the following three methods of obtaining the most competitive mortgage rate if your product is set to come to an end soon:

  • Reduce the loan-to-value of your borrowing: If you can, consider overpaying your current mortgage, or paying off some of your loan when your current deal ends. This may reduce the loan-to-value of your mortgage, which normally gets you access to better rates.
  • Organise your remortgage deal in advance: Most mortgage offers are valid for six months so you can secure a new deal now, then switch when your current deal ends, avoiding any future rate increases, going on to your lender’s standard variable rate and early repayment charges. If rates fall before you switch, you can change to another deal.
  • Speak to a whole-of-market mortgage broker: While it can be tempting to just speak to your current lender, they will only be able to offer you their range of products. An independent mortgage adviser can look at mortgages from a wide range of lenders to find the best deal for you. This could help you find a cheaper deal and save some money.

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