mortgage rates base rate

Will the Bank of England cut the base rate from 4.75% this week?

The Monetary Policy Committee (MPC) will vote this week on whether the Bank of England will bring down its base rate, with numerous factors making a cut to rates seem more likely.

The Bank of England base rate has been held at 4.75% since it was dropped to this level in November last year. Although earlier in the year, many analysts had expected a further cut before Christmas, it became less likely to happen as inflation proved stickier than expected along with slower than anticipated economic growth.

For mortgage holders and prospective buyers, keeping a close eye on interest rates can be important, as mortgage rates tend to follow similar patterns. However, unless you’re on a tracker rate, which is directly linked to the base rate, any changes may not be immediately felt.

Over the course of the past year, mortgage rates on the whole were on a downward trajectory, even when interest rates at the Bank of England were held steady. Lenders use other criteria, predominantly linked to swap rates, to decide on the products they offer to borrowers.

At the same time, the upcoming decision on Thursday 6th February will be an important one in terms of setting the tone for the year ahead.

What are the base rate predictions?

Looking first at the short-term outlook, both Goldman Sachs and Deutsche Bank are forecasting that this week’s vote will lead to a 0.25% rate cut, bringing it to 4.5%.

Over the course of the year, meanwhile, the International Monetary Fund (IMF) predicts that the MPC will vote in favour of a total of four base rate cuts, bringing the rate down to 3.75%. This is largely due to inflationary pressure and slowing wage growth, which could put more pressure on the Bank of England.

Santander matches this prediction of interest rates falling to 3.75%, while Barclays’ outlook is even more ambitious, expecting to end 2025 on a rate of 3.5%.

Some of these outlooks are slightly more reserved than they had been a few months ago, largely as a result of slower growth and some aspects of Labour’s first budget that were perceived to unsteady the market.

The basic idea behind bringing the base rate down is to increase appetite for borrowing as it becomes cheaper; while also encouraging people to spend rather than save, as savings rates also fall.

One of the MPC’s biggest goals is to keep consumer prices inflation (CPI) under control and as close to the government’s 2% target as possible. In recent results, inflation has hovered around the 2% mark, but the latest ONS figures showed it remained above-target at 2.5% in the 12 months to December.

What about my mortgage?

For those looking at taking out new borrowing or remortgaging right now, while keeping an eye on interest rates is important, it is also vital to choose a product that best suits your circumstances. Choosing the cheapest interest rate may not always be the best option – for example, you may benefit from more certainty over a longer time frame, or you may opt for a slightly higher rate with zero fees.

There has been a steep rise in borrowers opting for a two-year fixed rate over a five-year fixed, demonstrating the hope that the base rate and mortgage rates are set to fall. Others are choosing tracker rates to try and take advantage of expected shifts in the base rate, but this also carries more risk.

Hargreaves Lansdown head of personal finance Sarah Coles said: “If you’re on a fixed rate, it’s not going to move the dial significantly overnight, because the market had already largely priced this in.

“Right now, Moneyfacts data shows the average two-year fixed-rate mortgage has inched up from 5.48% at the start of the year to 5.52%.

“It may inch down again in the coming days, but news that mortgage rates might be back where they were a month ago is unlikely to unlock the floodgates.”

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