UK Mortgage Rates: What the Decision to Hold Interest Rates Means for You

The Bank of England’s recent decision to keep interest rates at 5.25% has significant implications for homeowners, savers, and those considering mortgages. Let’s break down what this decision means for your financial situation. 

Relief for Homeowners and Savers 

Firstly, homeowners and prospective buyers can breathe a sigh of relief. The decision not to raise interest rates is good news for those with variable-rate mortgages. These borrowers have seen their monthly payments steadily increase since late 2021 when the Bank began raising rates. 

Approximately 2 million variable-rate mortgage holders, including both residential and buy-to-let loans, have been affected. Half of them have base rate tracker or discounted-rate deals, while the other half are on their lender’s standard variable rate (SVR). The average SVR is now at 8.09%, the highest since 2007. 

Fixed-Rate Mortgage Holders 

If you have a fixed-rate mortgage, you’re protected from rising rates until your deal expires. However, the landscape for new mortgages has been turbulent. About 800,000 homeowners have fixed-rate deals ending in the second half of 2023, with 1.6 million more expiring in 2024. Mortgage costs were climbing, but since July, lenders have been reducing rates on new deals. 

Despite these reductions, households remortgaging now may still face substantial payment increases. For instance, someone with a 2% fixed-rate mortgage taken out two years ago could see their monthly payments increase significantly if they switch to a new 4.99% five-year fixed-rate deal. 

Choosing the Right Mortgage 

If you’re in the market for a mortgage, the decision to fix, track, or choose a discounted-rate deal depends on your financial situation and risk tolerance. Many borrowers are opting for shorter-term fixes or base-rate trackers with no early redemption penalties in the hope that rates may become more favorable in the future. 

Experts anticipate more price cuts on fixed-rate mortgages in the coming weeks, so borrowers due to remortgage should plan ahead and consult a whole-of-market broker for the best options. 

Savers May Find Opportunities 

Savers haven’t been left in the cold either. Although interest rates have not risen further, some attractive savings options are available. NS&I, the UK government’s savings bank, offers accounts paying 6% or more for those willing to lock in their funds for a year. NatWest has also increased the interest rate on its one-year fixed account. 

For easy access savings, Leeds Building Society and Shawbrook Bank are offering accounts with interest rates exceeding 5%. Nationwide recently launched a regular savings account exclusively for current account customers, paying an impressive 8%. 

Future of Interest Rates Uncertain 

While the decision to keep interest rates steady provides temporary relief for borrowers, the future remains uncertain. Markets are betting on further rate increases, but the Bank of England has not ruled out another interest rate hike. Your financial situation should be guided by careful planning and consideration of your specific needs and risk tolerance. 

Government’s Inflation Target 

The government aims to reduce inflation from 10.7% to 5.3% by year-end. The Bank’s projections suggest this target may be met, mainly due to falling international energy prices. However, economic conditions remain unpredictable. 

The Economy’s Outlook 

The Bank does not foresee a recession in the UK this year, although its forecast for GDP growth has been revised downward. It now anticipates a mere 0.1% rise in GDP in the third quarter of the year, down from the previous forecast of 0.4%. 

In summary, the decision to hold UK interest rates at 5.25% brings temporary relief to mortgage holders but also poses challenges for those considering new mortgages. Savers may find opportunities in competitive savings accounts, but the future of interest rates remains uncertain. Keep a close eye on economic developments and consult financial experts to make informed decisions about your finances. 

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Founded in 2017, Fintuity has fast become one of the only digital Independent Financial Advisers (IFA) in the United Kingdom.  Fintuity offers a wide range of financial advisory services including pensions, protection, investments and mortgage advice. The key difference is that as an exclusively digital service, we can offer significant savings and a service that is direct to you and on demand.