The Bank of England has voted to hold interest rates at 5.25% offering some much-needed relief to mortgage borrowers.
This is the first time since November 2021 the central bank’s monetary policy committee has not raised the base rate. There have been, up to today, 14 consecutive hikes to the rate.
It also comes just a day after an unexpected dip in inflation, which is now at 6.7%, and as mortgage lenders have been slashing rates – with some deals coming in at below 5%.
According to Karen Noye, mortgage expert at Quilter, the decision to hold rates suggested the Bank of England (BoE) was attempting to strike a balance between supporting economic growth and containing inflation.
“Historically, a decrease in inflation might have prompted the bank to lower interest rates to further stimulate economic activity but with inflation still running far above the 2% target it’s likely that they will keep interest rates elevated for some time yet,” she added.
What’s the impact on your mortgage?
But whilst the news will be good for those on tracker mortgages, whose repayments are aligned with the Bank of England (BoE) base rate, those remortgaging to new deals will still be in for shock following nearly two years of rate hiking.
Sarah Pennells, consumer finance specialist at Royal London said today’s decision, although welcome, will still not help those whose current fixed rate mortgage is near its end.
“They’re likely moving off a rate that was cheaper than the new fixed rate deals available,” she explained.
“For some, these higher repayment amounts will be unaffordable or a huge stretch on their finances.”
About to exit your current deal?
Pennells’ advice for anyone nearing the end of their current fixed deal is to look at your options and secure a new deal with a lender around six months in advance of the mortgage start date.
“If you’re concerned rates will continue to rise, it’s best to act as quickly as you can to put a new fixed rate deal in place and avoid moving onto a lender’s standard variable rate.
“Under the Mortgage Charter, most lenders have agreed that you will also be able to ask for a better like-for like-deal with your lender right up until your new term starts.”
What if you are worried about the high cost of your repayments?
Although today’s news is certainly positive, for most households the cost-of-living pressures persist. If you are worried about the high cost of your mortgage there is support at hand and practical tools at your disposal to help you.
A number of mortgage lenders have signed up to the Mortgage Charter which obliges them to offer solutions to borrowers who feel they may not be able to keep up repayments.
They can offer an interest-only option for six months or extend the mortgage term, which will lower repayments for six months. These are not subject to affordability checks nor will this impact your credit score.
The first step to taking control if you feel overwhelmed is to speak to your lender. Pennells said: “It is much better to have the conversation with your lender early so they can look at available support options with you before you find yourself with any mortgage arrears.
“Contacting them before you miss payments, or as soon as you’re falling short on payments, means there may be more options available to you to help make your payments affordable.”
