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

The Bank of England has announced it will hold the Base Rate at 5.25% again this month. The Base Rate has been held since August 2023, following 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 yesterday (19 June) that inflation had fallen back to its target of 2%.

The Bank’s focus is 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 – a seventh consecutive hold – shows the Bank’s belief that its plan to control inflation is working.  

What’s happened to mortgage rates recently?

Back in January 2024, we saw an unexpected rise in inflation, which resulted in mortgage rates edging up throughout the spring. But these increases were nothing like the sort of spikes we saw in July 2023, when Base Rate was still climbing. 
 
The average 5-year fixed rate is down from 6.08% in July 2023, to 5.03% this week, and the average 2-year fixed rate is down from 6.61% in July, to 5.44%. 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: “While the Base Rate hasn’t dropped today, yesterday’s positive inflation figure has kept us on course for a first cut by August. While many will have hoped for a surprise cut today, a hold was expected by the market – and therefore, this certainty could still lead to mortgage rates trickling down rather than up over the next few weeks, which is really what home-movers are after.” 

Will mortgage rates and interest rates be impacted by the election result?

The Bank of England’s Base Rate – or interest rate – isn’t decided by the government. While the Bank is owned by the UK government, it has had independence for setting monetary policy since May 1997. The Bank’s Monetary Policy Committee is responsible for the UK’s financial stability, setting the Bank Rate, and for the regulation of banks and insurance companies.   

Our mortgage expert Matt Smith says: “It’s difficult to predict when we could start to see sizeable drops in mortgage rates, mostly because their movement is dependent on what happens with the Base Rate, inflation, swap rates, and if there are any unexpected shocks to the economy.   

“The big picture remains the same – the Base Rate is unlikely to rise further, and if it does come down in the second half of this year, as expected, then mortgage rates could have some room to come down, before settling.”  

The fall in mortgage rates is likely to be gradual, and we won’t see prices return to the ultra-low rates that we had in 2021.  

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.

When could interest rates start to drop?

The Bank of England’s Monetary Policy Committee meets every six weeks to discuss and vote on whether interest rates should go up or down, or stay the same. 

History has shown that after interest rates have increased over time, they have remained flat before starting to come down. Though signs are showing that Base Rate is at its peak, it is following the pattern of remaining flat for the moment.   

In late 2023, the markets were predicting that the first Base Rate reduction may have arrived as soon as late Spring 2024. However, the Bank of England has since warned against cutting the Base Rate too early, and undoing the measures that brought sticky inflation back to 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 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 1 August 2024. 

The header image for this article was provided courtesy of Lancaster Samms, York

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.