The Bank of England has held interest rates at 4.5% meaning borrowers on tracker or variable mortgages will see no change to their repayments for the time being.
It had been widely expected the central bank’s decision makers, the Monetary Policy Committee (MPC), would vote to maintain the rate following the 0.25% cut in February.
In fact, the nine-member committee voted eight to one in favour of holding the base rate at 4.5% this time. The single member voting against this favoured a 0.25% reduction.
For borrowers today’s decision is likely to make little difference to their finances. Generally, when interest rates are cut those on tracker mortgages will see a corresponding change to their rate which will impact their repayments. This can also be the case for those on variable rates, although sometimes the cuts are not passed straight on.
For anyone already on a fixed rate mortgage, the repayments would not be impacted by interest rates now because the price is locked in for the duration.
However, those looking at remortgaging may be hoping for a interest rate cut to help drive down the rates on their new deal.
Those coming to the end of a two-year fixed rate will see mortgage rates have fallen since they signed up to their current deal.
But due to exit a five-year fix is more likely to be in for payment shock and, for these borrowers, a cut to the base rate would have been advantageous.
Alice Haine, personal finance fnalyst at Bestinvest by Evelyn Partners, said: “Existing borrowers on tracker mortgages must now wait until the next MPC meeting to see if their repayments ease.
“Meanwhile, borrowers whose ultra cheap five or 10-year fixed-rate deals – taken out before the BoE’s tightening cycle began – are about to expire are still likely to face a heavy jump in mortgage costs when they refinance.
“The big decision for mortgage borrowers now centres on whether it is best to lock in another fixed-rate deal, or whether a tracker might work out best over the longer term?
“This is why seeking advice from an independent mortgage broker – who can scour the market for the most cost-effective solution for an individual’s circumstances – is so key.”
Interest rates held: Advice for borrowers
Today’s decision had already been widely expected and comes as mortgage lenders have been gradually reducing fixed rates. But will mortgage rates fall further?
David Hollingworth, associate director at L&C Mortgages, said: “Lenders remain highly competitive and continue to make small adjustments to improve rates wherever they possibly can,” he said. “That trend looks likely to continue so it’s unlikely to result in any major drops in rates.”
He added: “The Bank of England has consistently suggested that interest rates can fall further, adding to the three cuts since last summer.
“Consequently, fixed rates have already priced in further reductions base rate, but this is still expected to be a gradual process. Unless there is a marked shift in the Bank’s messaging, mortgage rates look set to should remain relatively stable in the near term.”
Here’s Hollingworth’s advice for borrowers in various scenarios:
If you are on a tracker or variable rate… He said: “There will have been many hoping to see another rate cut to feed into their mortgage rate.
“Not all deals guarantee to mirror base rate movement and lenders can adjust standard variable rates as they like.
“However, a hold in base rate is likely to mean they will have longer to wait before they see any further payment reductions.”
If you are on a fixed-rate mortgage… Today’s decision will only really be on your radar if you are coming to the end of a fixed rate deal.
Hollingworth explained that these customers could be in quite different circumstances.
“Those that fixed for a couple of years during the peak of the mini budget volatility could be delighted to see the back of their deal,” he said.
“On the other hand, there are still swathes of borrowers edging toward the end of an ultra-low fixed deal that has given them protection from the rate hikes over the last five years.
“They will be bracing themselves for a hike in payments despite the improvements in the market, as rates have edged back down. Shopping around for the best rates and taking advice will help them to manage the inevitable rise in rate.”
