The Bank of England Base Rate

As anticipated, the Bank of England has opted to keep the interest rate steady at 5.25%, maintaining its position at this 16-year high for the sixth consecutive time. 

The decision, favored by a 7-2 vote from the Monetary Policy Committee, reflects the ongoing challenge of balancing economic stability against inflation, which persists above the Bank’s 2% target at 3.2%, despite recent declines.

The decision underscores the Bank’s cautious approach, aiming to manage inflation without impeding economic growth. Accompanying the monetary policy decision are forecasts suggesting a gradual adjustment in the economy’s trajectory. While there’s been a slight dip in inflation, it remains a significant concern, justifying the current rate according to Bank officials.

This decision aligns with expectations of most economists and market analysts, who foresaw the hold amidst prevailing economic conditions.

Mortgage Rates

Although the Bank of England Base Rate remained unchanged, mortgage fixed rates have been further increasing.

Many mainstream lenders such as Halifax, Virgin Money, HSBC and Santander have increased their rates by between 0.25 – 0.5% in the last few weeks.

Although rates vary from lender to lender and based on each person’s circumstances, a report from Moneyfacts states that ‘sub-5% deals continue to disappear.’

Why are mortgage rates going up if the Bank of England Rate hasn’t changed?

Mortgage fixed rates aren’t directly linked to the Bank of England Base Rate.

Many lenders have to raise funds used for mortgages through the financial markets and are priced using what are called Swap Rates.

A key factor with pricing Swap Rates is based on sentiment and forecasts around what will happen with the Base Rate in the future, not what is happening now.

Due to the fact that reports suggested that the Bank of England will postpone the potential for rate reductions until later than first expected, this increased Swap Rates which in turn increased mortgage fixed rates.

For variable rate mortgages (especially Trackers that ‘track’ the Bank of England Base Rate), there would have likely been little to no change.

Our Thoughts

The foundations are set for the Bank of England Base Rate and therefore mortgage rates to reduce later in the year. If this happens, we would also expect lender affordability to ease which has been another key factor with mortgages in recent times

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However, as we know, things can change quickly so we will continue to adapt accordingly.