On the one hand the fact the Base Rate – which impacts the rates charged on tracker mortgages and has an influence on fixed rates too – has not been increased offers a level of stability for borrowers locked into deals.
But for those who are about to remortgage onto new deals, the fact still remains that interest rates have leaped from 0.1% this time two years ago to a much higher level. Anyone moving to a new deal in 2024 can expect repayments to rise.
Karen Noye, mortgage expert at Quilter, described the BoE’s decision to hold rates as ‘a significant move with multifaceted implications for the UK economy’. She added: “But, by and large, it should spell good news for mortgages and the housing market.”
Indeed, Noye said this pause in hikes may boost confidence in the housing market, meaning there will be more potential buyers which could sustain or even raise prices.
But, for the rest of our finances, high rates are going to remain challenging especially with rising energy costs and high mortgage rates.
Noye added: “For those with mortgages, the picture is mixed. Borrowers on variable-rate mortgages gain a reprieve from immediate payment increases, which could encourage spending and economic activity.
“However, those looking to remortgage or secure new mortgages may still face relatively high rates and stringent lending criteria. Lenders however are likely to remain competitive, which could lead to more favourable rates for borrowers over time.”
What’s in store for interest rates in 2024?
Today’s decision to hold interest rates was not the preference of all members of the Bank of England’s monetary policy committee (MPC), the body which makes the decision in interest rates. In fact, three out of the nine wanted to increase interest rates by 0.25% to 5.50%
Alice Haine, personal finance analyst at Bestinvest, explained this demonstrated the BoE had maintained its cautious stance. She said it was ‘sticking with its ‘higher for longer’ strategy for now as it strived to keep inflationary pressures at bay’.
But, she added, it cemented the view the tightening cycle really was over.
There was speculation this week following weak economic data that cuts to borrowing would happen sooner than expected.
But Haine was not too sure. She said: “The split decision from the rate-setting Monetary Policy Committee – with six voting for a third rate pause and three favouring a 25-basis point increase to 5.5% – highlights the delicate balancing act for the central bank as it strives to not only curb inflation but also avert a downturn.”
Mortgage repayment struggles continue for many borrowers
Meanwhile, the Building Societies Association warned borrowers the challenging times were not over just yet.
Paul Broadhead, head of mortgage and housing policy at the BSA said: “For many mortgage borrowers it might feel like we’ve finally turned a corner, with inflation reducing and new mortgage rates nudging down. However, whilst the Bank of England’s Financial Policy Committee recently reported fewer households with significant financial vulnerability, we’re not out of the woods yet.”
He explained almost half (around 45%) of today’s fixed-rate mortgages were on rates agreed before the Bank Rate started to increase in December 2021.
As such borrowers on these mortgages would be coming off their fixed rates in the next three years, and should be preparing for a significant increase in their mortgage payments.
He added: “Lenders must still be alert to those families and individuals who may experience financial difficulties in the coming months. Practical, tailored support will continue to be offered to anyone who may be struggling.”
Haine echoed his advice: “Consumers should remain cautious though as they edge into the new year with the stuttering economy, softening jobs market and risk of recession red flags to be wary of,” she said.
“For now, household expenditure should remain conservative, with a priority placed on clearing expensive debts and building a robust emergency fund to weather any surprise financial storms in 2024.”
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