The Bank of England (BoE) has announced it will hold the Base Rate at a 16-year high of 5.25%. The Base Rate has been maintained since August 2023, following 14 consecutive rises.
The Bank had been raising interest rates to tackle high levels of inflation, which was above 10% in the early months of 2023 – significantly higher than the government’s target of 2%. In April 2024, inflation fell to 3.2%.
The Bank needs to strike the right balance between lowering inflation and keeping the wider economy healthy. The Base Rate hold today was widely expected, and this decision shows the Bank’s belief that its plan to control inflation is working. The next set of inflation figures, set to be released on 22 May, will be another important factor that informs the Bank’s future decision-making ahead of the next decision in June.
What’s Happened to Mortgage Rates Recently?
The Base Rate has been held at 5.25% since August 2023, and we saw mortgage rates edge down after this period and into January 2024.
However, there was an unexpected rise in inflation announced in January (+0.1%), which resulted in swap rates – the underlying cost of mortgages – edging up. This led to some lenders reversing some of their rate cuts. That said, we haven’t seen a spike in rates like we did during the same period in 2023.
The average 5-year fixed-rate mortgage is down from 6.08% in July 2023 to 5.02% this week, and the average 2-year fixed-rate mortgage is down from 6.61% in July to 5.41%.
What Do the Experts Think?
Our mortgage expert, Matt Smith, says, “After a few weeks of mortgage rate increases, we’ve seen early signs that this current run of rate increases has peaked, and we’d expect that average mortgage rates will begin to trickle down again soon. Inflation still seems to be heading in the right direction, a position that the Bank has highlighted in its decision today, with a view that it will fall below the 2% target in the coming months.”
“The market is still assuming that the first Base Rate cut will happen in the Summer, and today’s decision is unlikely to change that view. All eyes now turn to the publication of April’s inflation data, which is the next key milestone and is likely to determine the immediate direction of mortgage rates in the UK,” he adds.
What Does the Base Rate Hold Mean for My Current Mortgage?
Changes to the Bank’s Base Rate can impact how much interest you’ll pay on loans, including mortgages. If you’re on a fixed-rate deal, your monthly payments won’t change until the end of your deal. And if you’re on a variable or tracker mortgage, this month’s Base Rate hold will mean your monthly payments remain the same.
If you’re coming to the end of your fixed-rate mortgage soon, you’ve probably already started to think about the rate you’ll be offered on your next deal.
A good way to find out how much you could borrow is to use a mortgage calculator. And to get a personalised result by applying for a Mortgage in Principle which will take you one step closer to a mortgage offer.
In July 2023, the Mortgage Charter was launched to help those struggling to meet their monthly payments, as well as borrowers who are coming to the end of their fixed rates soon.
Under the Mortgage Charter, borrowers will be able to lock in a new deal up to six months before your expiring deal ends. You can also request a better like-for-like deal with your lender up to two weeks before your new term starts, if one is available.
When Could Interest Rates Start to Drop?
The Bank of England’s Monetary Policy Committee meets about every six weeks to discuss and vote on whether interest rates should go up or down, or stay the same.
Most now believe that the Base Rate is at its peak, and is likely to start dropping back in the second half of 2024. History has shown that after interest rates have increased over time, they have remained flat before starting to come down.
In late 2023, the markets were predicting that the first Base Rate reduction may come as soon as late Spring 2024. However, the Bank of England has since warned against cutting the Base Rate too early, and that there is still a long way to go before inflation reaches its 2% target. Right now, it looks more likely that, barring any shocks to the wider economy, the Base Rate is expected to be cut at some point this year and continue to edge downwards through 2025.
Though as always, this could change depending on what happens in the broader economic environment.
The next decision on interest rates will be announced at 12pm on 20 June 2024.
If you’re interested in finding out more about house prices Beaumaris or exploring potential investments in the housing market, particularly for larger properties such as a 6 bed, it’s essential to stay updated on these economic developments.