The Bank of England has held interest rates at 4.75% meaning borrowers must now wait until 2025 before they have any chance of seeing reductions to their mortgage repayments.
The decision to maintain the rate will come as no surprise as it had been widely expected the central bank’s decision makers, the Monetary Policy Committee (MPC), would maintain the Base Rate at its current level.
This is due to wages increasing this year by more than expected plus inflation rising by 2.6% – well above the Bank of England’s (BoE’s) target of 2%.
It will be disappointing news for those mortgage customers on tracker or variable rates hoping for an early Christmas gift from their mortgage lenders.
But it would have made no difference to customers who already are on fixed rate deals because the repayment cost is locked in.
Meanwhile, anyone in the process of taking out a fixed rate mortgage will have already noticed lenders have made their price adjustments in the run up to today’s decision. This is because they use Swap rates to set pricing.
When will the Bank of England cut interest rates and by how much?
The big question on everyone’s lips today will be, if rates are not cut before Christmas, when will they be cut?
Experts believe the BoE will reduce interest rates at least twice in 2025, but they are not sure when.
Rosie Hooper, chartered financial planner at Quilter Cheviot, said: “It is anticipated that there will be at least two 0.25% reductions in the base rate next year. These cuts could provide some much-needed relief for affordability, particularly for first-time buyers and those looking to remortgage.”
Meanwhile, David Hollingworth, associate director at L&C Mortgages, agreed there would be cuts but thought they would not be drastic. “Further base rate cuts are expected next year but the Bank of England has played a consistent line that those reductions are more likely to be slow and steady in pace,” he said.
Nicholas Mendes, mortgage technical manager at John Charcol, explained there were several factors which influence mortgage rates, not just interest rates, and this could impact how much we pay for our mortgages.
“Mortgage rates are expected to decline in 2025,” he said, “but the extent and pace of this reduction will depend on several factors. Current projections indicate that the MPC will cut rates by 0.25% each quarter until mid-2025. However, forecasts suggest rates may only drop to around 3.5% by early 2026.
“A crucial factor in this scenario is the role of swap rates, which lenders use to price fixed-rate mortgages and manage risk.
“Swap rates reflect the cost for lenders to borrow money over the term of a mortgage and indicate market expectations for future interest rates. If swap rates rise—perhaps due to an expectation of fewer rate cuts—mortgage rates often follow suit, even when the Bank Rate is reduced.”
He said stable market conditions would be ‘essential’ if we were to see big rate reductions and inflation would need to remain consistently below the BoE’s 2% target.
“A settled economic environment would encourage lenders to offer more competitive rates, he added. “Additionally, global economic factors such as energy prices and supply chain stability could also influence mortgage rate trends.”
