The Bank of England’s Monetary Policy Committee (MPC) held one of its eight annual meetings today to take a vote on what should happen with the UK base rate. The decision has been made to keep the base rate at the same level of 5.25%.
The current 5.25% UK base rate
The previous base rate increases have been to try to keep inflation under control and bring it down. Increasing interest rates makes the cost of borrowing more expensive and saving money a more appealing option. As consumers spend less, the prices of goods and services will eventually come down, causing inflation to slow and decrease.
Originally, it was predicted that the base rate would be increased to 5.5%. However, inflation has been decreasing, with a further decrease to 6.7% announced yesterday by the Office for National Statistics (ONS). In light of this lower inflation rate and combined with the fact that economists have warned that increasing the rate further would push the economy over the edge and into a recession, the MPC voted to maintain the base rate at its current level of 5.25%.
It takes between 18 months and 2 years for base rate changes to have a true impact on the economy. Although the inflation rate is coming down, there’s still a long way to go before the Bank of England’s target of 2% is met. The Bank of England recently forecast that inflation will fall to 5% by the end of the year. Economists from Deutsche Bank, however, have predicted that it will fall below this rate, decreasing to 4.6% by the end of 2023.
Will mortgage rates come down?
If you have a standard variable rate mortgage, your interest rate is determined by your lender. This means that it will only come down if they choose to reduce their rate. If you have a tracker mortgage, which usually follows the base rate, your interest rate will stay the same. If you have a fixed-rate deal, the rate you pay won’t be affected during the fixed term. This is regardless of what happens to the base rate.
For new deals, fixed mortgage rates have started to come down. Some of the UK’s biggest lenders are now offering deals with reduced rates. Recently, a fixed rate mortgage at under 5% was released, which was the first at this level in months. A mortgage rate war between lenders is now underway, which is good news for borrowers.
Whether you’re thinking about switching your variable deal to a fixed one, your fixed deal is coming to an end and you need a new one or you’ve been waiting for rates to come down before you buy, news of these rate reductions is sure to be a relief. If you want to find out what deals are available and how you can benefit, just give our mortgage brokers a call on 01322 907 000.