The Bank of England has decided to keep the Base Rate steady at 5.25% this month. This marks the seventh consecutive time the rate has been held since August 2023, following 14 straight increases. So, what does this mean for your mortgage and future borrowing? Let’s dive in and see.
Why Are Rates Being Held?
The Bank of England has been working hard to combat high inflation, which was over 10% in early 2023. This was far above the government’s target of 2%. The good news is that inflation has now dropped to the target rate of 2% as of June 19. With this improvement, the Bank has decided to maintain the Base Rate at 5.25%, indicating confidence in its current strategy to manage the economy.
Mortgage Rates: The Current Landscape
Earlier this year, an unexpected rise in inflation in January 2024 led to slight increases in mortgage rates during the spring. However, these increases were not as dramatic as those seen in July 2023 when the Base Rate was still climbing.
Currently, we’re seeing some relief. The average 5-year fixed mortgage rate has fallen from 6.08% in July 2023 to 5.03% this week. Similarly, the average 2-year fixed rate has decreased from 6.61% to 5.44%. If you’re in the market for a mortgage, these lower rates are a promising sign.
Expert Insights
Rightmove’s mortgage expert, Matt Smith, shared his thoughts: : “While the Base Rate hasn’t dropped today, yesterday’s positive inflation figure has kept us on course for a first cut by August. While many will have hoped for a surprise cut today, a hold was expected by the market – and therefore, this certainty could still lead to mortgage rates trickling down rather than up over the next few weeks, which is really what home-movers are after.”
Impact of the Upcoming Election
You might wonder if the upcoming election will affect mortgage and interest rates. Here’s the lowdown: The Bank of England’s Base Rate isn’t decided by the government. The Bank’s Monetary Policy Committee (MPC) has been setting these rates independently since May 1997. Their main job is to maintain the UK’s financial stability.
Rightmove’s expert Matt Smith also adds, “It’s difficult to predict when we could start to see sizeable drops in mortgage rates, mostly because their movement is dependent on what happens with the Base Rate, inflation, swap rates, and if there are any unexpected shocks to the economy.
“The big picture remains the same – the Base Rate is unlikely to rise further, and if it does come down in the second half of this year, as expected, then mortgage rates could have some room to come down, before settling.”
However, don’t expect mortgage rates to fall back to the ultra-low levels of 2021. Any reduction will probably be gradual.
What This Means for Your Mortgage
If you’re on a fixed-rate mortgage, your monthly payments won’t change until your deal ends. For those on a variable or tracker mortgage, this month’s Base Rate hold means your payments will stay the same for now.
Is your fixed-rate deal coming to an end soon? Now’s the time to start looking at new rates. A mortgage calculator can help you figure out how much you could borrow, and applying for a Mortgage in Principle is a smart next step.
The Mortgage Charter, introduced in July 2023, aims to help those struggling with payments or nearing the end of their fixed-rate deals. It allows borrowers to lock in a new deal up to six months before their current one ends and request a better deal with their lender up to two weeks before the new term starts.
When Will Rates Drop?
The MPC meets every six weeks to decide on interest rates. Historically, after a series of increases, rates tend to plateau before decreasing. Current trends suggest the Base Rate might have peaked, with cuts expected later this year and continuing into 2025.
But remember, these predictions can change depending on the broader economic environment. The next interest rate decision is set for 12 pm on August 1, 2024. So, stay tuned!
In Summary
The Bank of England’s decision to hold the Base Rate at 5.25% indicates confidence in its inflation-fighting strategy. While mortgage rates have seen some increases earlier this year, they are now on a downward trend, offering some relief to prospective homebuyers and those looking to remortgage. Keep an eye on the upcoming decisions and use tools like mortgage calculators to stay prepared for your next move.
This blog post is based on information from an article by Rightmove.
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