The current base rate remains at 5.25%

The current base rate remains at 5.25%

As widely anticipated, the current base rate has remained the same at 5.25%. This follows the latest review by the Monetary Policy Committee (MPC). This is the second time in a row that the rate has been held. Here, we’ll look at why that decision was made and what it means for you as a mortgage borrower.

The previous position

After gradually reducing in recent months, the current inflation rate has remained the same as the previous month at 6.7%. It’s a significant drop compared with the 41-year high of 11.1% in October 2022. However, it still sits at over three times the Bank of England’s inflation rate target of 2%.

Until September 2023, the base rate had been increased 14 consecutive times to combat inflation. In response to another drop in inflation confirmed for August, among other factors, the MPC decided not to raise the base rate again in September. One of the other factors was the concern that a further base rate increase would push the fragile UK economy into a recession.

The current base rate of 5.25%

So why was the decision made to keep the base rate at 5.25% again this month? The unexpected sticky inflation would certainly make another rate increase seem viable. However, core inflation has slowed down, which is a good sign that prices may start falling in the near future. And it’s believed that, whilst the inflation rate is still so high, increasing the base rate with the current economic situation would do more harm than good.

For the future, it’s expected that the base rate will remain steady in the long term. The effects of the previous rate hikes are still to filter through. This is because base rate changes take 18 months to 2 years to fully impact the economy. In fact, economists have predicted that interest rates won’t decrease until the middle of next year.

How does the current base rate affect mortgage rates?

If you have a tracker mortgage or other variable rate mortgage, the news that the base rate has remained the same is welcome. For the second month in a row, you can rest easy knowing that your monthly payments won’t increase.

With the base rate predicted to stay the same in the long term, it’s possible that demand may increase for variable rate mortgages. This is especially the case for tracker mortgages. Although, if you already have a variable rate mortgage, the anticipated wait before a base rate decrease may be a bit disheartening.

Recently, lenders have been offering new deals with reduced mortgage rates, especially fixed rates. This has been in response to the declining inflation rate. However, as UK inflation held firm rather than reducing once more, it’s been predicted that mortgage rate reductions may slow down as a result.

Discuss your mortgage concerns with an expert broker

Our mortgage brokers are available to talk through any queries you may have about your mortgage or alternative deals. They can compare your existing deal with others available to ascertain whether it’s beneficial to switch or not. If you’re struggling to keep up with your mortgage payments, they can advise you on the help available. For example, as detailed in the Mortgage Charter. Just give us a call on 01322 907 000 for impartial, expert advice to help you make the right decision for your financial needs.