The UK base rate holds firm at 5.25%

The UK base rate holds firm at 5.25%

After today’s review by the Monetary Policy Committee (MPC), the UK base rate has been held at 5.25%. This is the third time in a row that the rate has been held at this level after 14 consecutive increases until September 2023. But whilst this was widely predicted, why hasn’t the rate come down when inflation dropped to a lower than expected rate in the year to October? 

Why was the UK base rate predicted to stay the same? 

The continuous rate increases until September were made to tackle the soaring inflation rate. This hit a 41-year high in October 2022 of 11.1%. A year later, the inflation rate has dropped significantly to 4.6%. The predicted drop in inflation was 4.8% so this lower figure is encouraging. It shows that the measures taken to combat inflation by increasing interest rates have worked. However, the Bank of England’s 2% target still needs to be met and inflation is currently over double that rate. 

Rather than bringing interest rates down now that inflation is lower, the Bank of England has advised that it’s too soon to start cutting rates. Inflation is expected to fall again by the end of this year to 4.5% but needs to continue falling until the 2% target is reached. Reducing interest rates at this stage might reverse the measures that have worked so far. 

On the other hand, increasing interest rates to try and reach the 2% target sooner could push the UK economy over the edge and into a recession. Millions of households are already struggling with the cost of living of crisis. Homeowners are having to make mortgage repayments that are hundreds of pounds higher than before. Inflation has to be got under control and is heading in the right direction. However, increasing rates again is not seen as a viable solution at this stage.  

Instead, the Bank of England is expected to keep interest rates at this level for the long term. Once price growth and the labour market have stabilised, the Bank of England will then likely reduce interest rates. This isn’t expected to happen until mid-2024, however.

How will this affect mortgage rates? 

As the UK base rate is believed to be at its peak, how will mortgage rates be affected? The mortgage rates offered by lenders for new deals have been coming down recently, especially for fixed-rate deals. This is a result of the reduced inflation rate and the slowing property market. In fact, there have been significant fixed-rate reductions since July. However, as interest rates are staying the same, with no reduction on the immediate horizon, it’s likely that mortgage rate reductions will start to slow down. 

What should you do about your mortgage? 

The best deals tend to go quickly so if you’ve currently got a fixed-rate mortgage and your deal is due to expire within 6 months, it’s worth locking in a new fixed rate now. You can do this without being penalised by your lender as your new rate will start as soon as your existing deal finishes.  

If you already have a variable-rate mortgage, especially a tracker mortgage, your rate will stay at this level until the base rate is lowered. This, unfortunately, isn’t expected to be until the middle of next year. It’s a good idea to look at what other options are available to you at the moment. It’s worth seeing whether you can get a better deal, even if you switch from a variable-rate mortgage to one with a fixed rate. 

Our mortgage brokers can compare your current deal with the latest deals on offer, including exclusive deals that you won’t find listed on comparison sites. Just give us a call on 01322 907 000 to find out if you can benefit from a better option. They can also advise you on the support for borrowers that’s currently available. For example, switching to interest-only payments for up to 6 months without affecting your credit rating. Or applying for a Support for Mortgage Interest (SMI) loan to help with your mortgage interest repayments. 

If you’re looking to buy rather than remortgage, our mortgage brokers can tell you about the incentive schemes available. As a first-time buyer, for example, the First Homes Scheme can help you to get on the property ladder. Deposit Unlock is a scheme that can help both first-time buyers and existing homeowners looking to move. Feel free to give us a call on 01322 907 000 for more information about the financial help available.