Interest rates will remain at their 16-year high of 5.25% until August at least after the Bank of England voted to keep them on hold.
Whilst it was widely expected the bank’s Monetary Policy Committee (MPC) would maintain the base rate, the decision will be a blow to the many homeowners hoping a cut might ease repayment pressures.
Seven members of the nine-member MPC voted to hold rates at 5.25% despite inflation falling to its target level of 2%.
The remaining two members, however, voted to cut interest rates by 0.25% to 5%.
Paul Broadhead, head of mortgage and housing policy at the BSA said: “The decision to keep rates at 5.25% will be very disappointing news for [mortgage borrowers], as well as those looking to buy their first home.
“With two of the nine members of the MPC voting for a cut today, it is clear that some are holding out for more overwhelming evidence that inflation can consistently stay at or close to the target.
“We still anticipate the Bank Rate will reduce this year, however this is happening much later and slower than we had anticipated earlier in the year.
“Homeowners who are coming to the end of a fixed-rate mortgage this year, will need to prepare for an increase in their mortgage payments.”
August has, for weeks, been the date the markets had forecast as the most likely time for the Bank of England to cut interest rates. But, what are the prospects of a summer base rate cut now?
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, thought the chances were now lower.
“What might also be worrying,” she said, “is the lack of movement on the rate-setting MPC’s voting pattern with seven in favour of holding the status quo and two calling for a reduction – mirroring the decision at the meeting in May. It means hopes of a summer rate cut in August may also get dashed.
“Despite inflation hitting the 2% milestone in the 12 months to May, the BoE is erring on the side of caution for now as it waits to assess if sticky services inflation – which came in at 5.7% – will continue to remain high.”
She added: “The BoE’s decision also avoids a rate cut move becoming politicised in the run up to the General Election polling day.”
How today’s decision will impact mortgage borrowers
If you are already locked into a fixed rate your repayments will remain the same, and this will also apply for those who are on tracker deals, which run in line with the base rate.
It is those borrowers who are due to come to the end of fixed-rate deals in the next few months who will be impacted most by today’s decision.
Haine said: “Those nearing the end of their product’s fixed-rate term should not wait too long for a better deal to come along otherwise they risk reverting to their lender’s ultra-expensive standard variable rate (SVR), with the average SVR still sitting above the 8% mark.
“With the number of homeowner mortgages in arrears on the rise, finding the best deal possible rather than no deal at all will be the best option for now.”
Data out today from Moneyfactscompare.co.uk shows the average SVR is currently 8.18%.
Meanwhile, its analysis also showed, the average two-year fixed rate was currently 5.93% and the typical five-year fix was 5.50%. These have both increased since last month but are lower than they were in December.
Rachel Springall, finance expert at Moneyfactscompare, said: “At present, it’s cheaper to lock into a five-year fixed mortgage than a two-year deal, based on average rates, which has been the case since October 2022.
“First-time buyers who are struggling to get their foot onto the property ladder and don’t have the ‘Bank of Mum and Dad’ to lean on may feel getting a mortgage is too far out of reach right now.
“Regardless, the uncertainty surrounding interest rates should make it vital for borrowers to seek advice from an independent financial adviser to review all the options available to them.”
If you worried you might not be able to afford your repayments, Paul Broadhead offered the following advice.
“Anyone who is concerned that they may experience financial difficulties in the coming months,” he said, “should contact their lender as soon as possible, preferably before missing any payments. They have a range of practical, tailored support available to anyone who may be struggling.”
