interest rates BoE interest rate rise bank of england

Bank of England decision: interest rates held at 5.25%

The Bank of England has once again kept its base rate at 5.25%, where it has sat since August 2023. How could this affect mortgage rates for borrowers?

While most forecasts have predicted a gradual pulling down of interest rates by the Bank of England over the course of this year, the Monetary Policy Committee (MPC) have voted that it is too soon to take such action just yet.

Inflation is said to play a significant role in the decision-making process and, although inflation had been falling continuously during 2023, it experienced an unexpected – yet small – jump in the latest figures for December, to 4% from 3.9% in November. The current target is 2%, so the Bank of England will be taking this into account.

Analysts are currently predicting a “steep drop” in the consumer price index (CPI) over the next six months, so it appears likely that the Bank of England will be announcing “several” cuts to interest rates in 2024; but we may not see these until the end of the year.

A number of external factors also play a role though, including strong wage growth which could slow down inflation falls, as well as the growing conflict linked to the shipment of goods through the Suez Canal which could push up prices once more.

Bank of England decision

Paresh Raja, CEO of Market Financial Solutions, said: “The Bank of England continues to walk a tightrope. Sticky inflation is making them hesitant to cut rates, but a rise in company insolvencies and the general impact of a higher cost of borrowing on the UK economy is piling on pressure to drop the base rate.

“Either way, we now know the base rate has almost certainly peaked, and it is just a matter of time before it comes back down. This shift has already started to have an impact on lenders and the property market in recent months. Mortgage, bridging and BTL rates all have started to fall, and there are the green shoots of recovery emerging after two challenging years, with early signs suggesting buyer demand and house prices are picking up.

“The Bank might hold again – perhaps multiple times – before the cuts come, but the market is benefitting as that seemingly inevitable decision draws closer.”

The mortgage market

Although mortgage-holders across the UK may have been hoping for a rate cut from the Bank of England, it is interesting to note the recent effects of holding the base rate on the mortgage market.

According to research, while there has been some volatility in rates over the past 18 months, overall the average two-year fixed rate mortgage has fallen from 6.85% to 5.56% since August 2023, when the base rate was first held at its current level.

In the five-year mortgage market, rates have dropped from 6.37% to 5.18%, with falls in both mortgage types being recorded since the start of 2024 as lenders continue to launch competitive products.

However, for those on standard variable rates, the news is not so positive. The average now stands at 8.17%, says Moneyfacts, up from 7.85% in August 2023, and by far the most expensive product in most cases.

Depending on your circumstances, you may be able to secure a below-average mortgage rate, potentially with product fees added. For property investors, buy-to-let mortgage rates have also been coming down at a similar rate, while the number of deals available from lenders has been on the rise.

Rachel Springall, finance expert at Moneyfacts, said: “The recent volatility surrounding fixed mortgage rates may make it more pressing for borrowers to secure a deal as soon as possible, particularly as there are now a few lenders offering fixed rates below 4%.

“Lenders can pull deals if they have an influx of applications, and a volatile swap rate market can put pressure on pricing where margins are already tight. It would be inevitable to see a mix of both fixed rate rises and cuts when lenders endeavour to manage consumer demand, any targets and future rate expectations.”

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