The Bank of England decided to reduce the base interest rate by 0.25% at their last meeting. This meant that the rate reduced from 4.75% to 4.50%.
The reason for this is that while economic growth remains fragile, at the time, inflation had slowed to 2.5%.
However, since then, annual inflation has increased to 3% according to figures released by the Office of National Statistics.
This could lead to further cuts to the base rate being delayed as the Bank of England walks a tightrope with managing interest rates.
Mortgage Rates
Mortgage rates have also reduced over the past few weeks.
Many major banks and building societies reduced their rates from anywhere between 0.11% – 0.97%.
The first sub 4% products for some time were released with Santander and Barclays releasing 3.99% 5 year fixed rate mortgages.
Moneyfacts have said that fixed rate reductions have taken centre stage over recent weeks which is great news for borrowers.
Moneyfacts spokesperson Caitlyn Eastell says:
“A conjunction of falling swap rates and a cut to bank base rate last week has provided a much more hopeful outlook. It is positive news to see many lenders reducing fixed rates, as typically it is not guaranteed that any interest rate reductions will be passed on.
“Many borrowers would have been keeping an eager eye on falling mortgage rates which will now be rewarded with the return of sub 4% deals and those looking to refinance may be relieved.
It is now as crucial as ever that borrowers do not unknowingly slip onto their SVR as although base rate reductions are being passed on, they still pay significantly more than a fixed deal.”
Our thoughts
It’s great to see rates reducing over recent weeks, but it’s important to keep in mind the impact that factors like inflation could have on rates in the future.
What we do know is that rates can go up and down quite quickly so it’s important for people who need a mortgage in the coming months to keep an eye on the market.
Wherever possible, a good strategy is to try and book a rate to protect yourself if rates go up, but have the ability to switch if rates reduce before completion of the loan.
