Interest rates held at 5.25%: here’s what it could mean for mortgages

The Bank of England (BoE) has announced it will hold the Base Rate at 5.25% again this month. This follows the same decision as the previous four meetings, when the Base Rate was held after 14 consecutive rises.

The Bank had been raising interest rates to tackle high levels of inflation, which was in excess of 10% in early 2023 – way above the government target of 2%.

It was announced that inflation had fallen to 3.4% this week, which was slightly a slightly bigger drop than the markets were predicting.

The Bank needs to strike the right balance between lowering inflation and keeping the wider economy healthy. The Bank’s Base Rate hold today was widely expected, and this decision – a fifth consecutive hold – shows the Bank’s belief that its plan to control inflation is working.

What’s happened to mortgage rates recently?

Base Rate has been held at 5.25% since August 2023, and we saw mortgage rates edge down through this period and into January.

But there was a somewhat unexpected rise in inflation announced in January (+0.1%), which resulted in swap rates – the underlying cost of mortgages – edging up by around 0.3%. And this led to some lenders reversing some of the rate cuts they’d made in recent months, and mortgage rates rose steadily throughout February and into March.

This week, we’ve seen a slowdown in the rate of rises, and average rates either edged up only very slightly, or remained unchanged. Plus, since the positive inflation figures were announced on Wednesday, swap rates have fallen slightly.

The average 5-year fixed rate has fallen from 6.08% in July 2023, to 4.85% this week, and the average 2-year fixed rate has fallen from 6.61% in July, to 5.23%. You can check the current average mortgage rates for different terms and deposit sizes here, which we update weekly.

What do the experts think?

Our mortgage expert, Matt Smith, says: “Although today isn’t the day for the first Base rate cut, each day that passes is one step closer, and it’s very much a ‘when’ rather than ‘if’ we see the first drop from 5.25%.

“Mortgage rates have risen slightly over the last 6 weeks but it does feel like the pressure on lenders to increase rates has dissipated, with some lenders having already cut rates in response to yesterday’s positive inflation news. This may mean that average mortgage rates start to fall back in the next couple of weeks. If this is the case it will be first time average rates will have reduced in over a month.

“Home-movers shouldn’t expect to see a rush of rate cuts, but the two announcements this week should hopefully continue to give movers more confidence than they perhaps had at the start of last year. That’s certainly been the theme so far after the first quarter of the year – with more people enquiring to purchase homes, more sellers come to market and more sales being agreed than this time last year”, 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 an 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.

If you want to know more about what to consider when looking for a mortgage rate, take a look at our article: choose whether a 2 or 5-year fixed could be the right option for you.

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.

Though signs are showing that Base Rate is at its peak, it is likely to remain flat into 2024, before starting to drop back. 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’s looking more likely that, barring any shocks to the wider economy, the Base Rate is expected to be cut towards the end of 2024, 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 9 May 2024.

The header image for this article was provided courtesy of Abbotts, Hunstanton. 

READ MORE: What is the Mortgage Charter and what help does it offer borrowers?

Please note: Rightmove is not authorised to give financial advice; the information and opinions provided in these articles are not intended to be financial advice and should not be relied upon when making financial decisions. Please seek advice from a specialist mortgage provider.