Interest rates will remain at 5.25% for at least another month after the Bank of England (BoE) voted against the much-hoped-for cut to the base rate.
This is the sixth consecutive time the bank’s decision makers, the Monetary Policy Committee, have held interest rates.
Of the nine-member committee, seven voted to keep the base rate at its current level and two voted for a reduction of 0.25% to 5%.
This has shown there is clearly a little more appetite amongst the BoE to lower rates – but it’s not quite enough to deliver that all-important cut.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said the decision will provide little comfort for borrowers hoping for some respite from consistently high borrowing costs.
“What was comforting,” she added, “was the shift in sentiment from the rate-setting Monetary Policy Committee (MPC) with signals that softening UK inflation is paving the way for rate cuts in the coming months.
“This was evident in the MPC’s split decision with seven in favour of holding the status quo and two calling for a rate cut – a slight change in stance from the MPC’s voting pattern last time around, when eight voted to leave rates unchanged and one voted for a quarter-point rate cut.”
What does this mean for your mortgage?
But the big question on everyone’s lips is what today’s decision means for our mortgages.
For those on tracker mortgages, which move up and down with the base rate, your repayments will remain the same. Indeed, if you are on a fixed rate which is not due to end for some time, nothing will change.
It is those borrowers who are due to exit a fixed-rate deal in the near future who will be impacted most by today’s decision.
Indeed, in recent months lenders have been increasing mortgage rates in response to SWAP rates, which they use to adjust pricing.
Nicholas Mendes, mortgage technical manager at John Charcol, explained typically, there is a lag of up to two weeks between changes in swap rates and the corresponding adjustments in mortgage rates.
Lenders are also influenced by financial forecasts from the markets along with the BoE bank rate.
Mendes explained: “Until a reduction in the bank rate occurs, there will be a period of uncertainty that prompts markets to speculate and continually adjust their forecasts. This situation is expected to lead to an ongoing phase of repricing by lenders.”
He added: “Swaps have reduced slightly in recent days as markets price in a rate reduction, which should pave the way for lenders to reprice marginal decreases over the next fortnight.”
When will the Bank of England cut rates?
The next meeting of the MPC is due on Thursday 20 June – will this be the date we finally see a reduction in the base rate?
Mendes said: “The likelihood of a rate cut in June remains high, but this could be followed by an additional cut in either September or November.”
Other experts are a little less specific in their forecasts, but most expect cuts will happen at some point in 2024.
Paul Broadhead, head of mortgage and housing policy at the Building Societies Association, said: “We still anticipate that the MPC will cut rates later this year, and although mortgage rates have ticked up slightly in recent weeks, they remain lower than they were this time last year.”
Should I wait for interest rates to fall before taking out a mortgage?
If you are coming to the end of a fixed-rate deal and wondering whether to wait for interest rates to fall, the advice is to consider this carefully and speak to a broker or adviser.
Haine said: “However painful the increase, those looking to refinance should not delay locking in fresh deal, otherwise they risk reverting to their lender’s standard variable rate (SVR), with the average SVR still hovering above the 8% mark.”
She added: “Remember, buyers can lock in a deal up to six months before they need it to start and can then update their rate with their lender as many times as they want – provided better options come online – before the product term begins.”
Meanwhile, Sarah Thompson, managing director of Mortgage Scout, had advice for those looking to buy a home.
“Homebuyers should still consider current fixed-rate mortgages,” she said, “which remain lower than last year [and] offer homeowners a level of certainty in planning their financial futures. It is always advisable to speak to a broker so that they can work with you to find the best product for your circumstances.”
