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BoE Holds Base Rate at 5% | What it Means for Your Mortgage
On Steptember 19th, The Bank of England has held the base rate at 5.0%, following a 0.25% drop in August.
Although just a quarter of a percent reduction, that marked the first rate drop since 2020 when rates reached an all-time low.
It signalls a cautious approach in the BoE's efforts to balance inflation control with economic growth.
Recently in the mortgage market, the first 5-year fix product under 4% has also become available from a mainstream building society, wich is a significant milestone.
But will mortgage rates continue to drop? And by how much?
Our mortgage brokers weigh in on the discussion, and we analyse the bigger picture of the UK economy, inflation, and the mortgage market in this article.
See similar: Are Mortgage Rates Going Down?
What Do the Experts Say?
George Abouzolof
Senior Finance Broker CeMAP
It’s difficult to know what the Bank of England has in store for the end of the year, but there are indicators that the base rate will still see reductions in the coming months. We’re seeing rates drop across all loan-to-value ratios, particularly from some larger lenders.
Inflation is likely top of mind to avoid getting out of control again, which may be reflected in the Bank of England’s decision to keep the base rate at 5%.
Inflation currently sits at 2.2%. This is only incrementally higher than the 2% target, but it’s likely to tick up gradually in response to the increased market activity brought on by lower interest rates.
However, provided the landscape stays consistent, there is scope for further base rate reductions in the next year
Alex Morris
Private Clients Adviser
We could see continued reductions in borrowing costs, and external factors such as global economic instability or unexpected events could impact the market.
The August base rate cut is still good news for households, and the long-term outlook depends on how inflation and other economic factors evolve. For now, keeping inflation under control and the base rate being maintained at 5% is a step in the right direction.
Read blog: Should You Get a Tracker or Fixed Rate Mortgage in 2024? & Is Now the Time to Switch?
The graph below shows how the bank rate has increased since mid-2021.
(Credit: Bank of England)
It’s clear that inflation remains a central concern for the Bank of England. Maintaining a hawkish stance on the base rate continues the affordability strain prospective buyers have been experiencing, but it’s likely that house prices won’t jump significantly amid these concerns.
Future Projections for the Housing Market
But just because the Bank of England has ruled out a consecutive base rate reduction, doesn’t mean there isn’t one to come.
Experts are confident that there will be further reductions before the year is out. While it’s likely that interest rates won’t return to the uber-low levels we saw before 2022, five-year fixes dropping consistently across the board is certainly a sign that there are more reductions to come.
And on top of this, the housing market is showing signs of recovery. Increased buyer activity and improved market sentiment have contributed to modest house price increases, though affordability remains a key challenge.
As autumn approaches, expect continued steady growth in house prices, followed by the typical seasonal slowdown toward the end of the year.
Related: What is a Professional Mortgage and Can You Get One? & Spring Budget 2024: 5 Key Property Market Takeaways
How Does Inflation Influence the Bank Rate?
COVID-19 caused a shortage in products and services in 2020, and this demand led to increased prices. Then, Russia’s invasion of Ukraine impacted energy and food prices. Finally, it became evident in 2022 that thousands of people had left the workforce following the pandemic. This pushed up hiring costs, and many businesses subsequently raised their prices.
These three major hits to the economy contributed to the current cost-of-living crisis. Because major events have a relationship with inflation, the long-term view on inflation is never set in stone, but experts can make an educated guess with the data they do have.
Inflation is now in line with the BoE's target of 2%, which many feel is the primary reason the bank has lowered interest rates for the first time - but it wasn't a landslide result.
Some economists predict that another cut could be on the horizon in November, depending on inflation. However, it's definitely clear that the exceedingly low 0.1% rates from 2021 are a 'thing of the past'.
How Can You Find an Affordable Mortgage in 2024?
Despite the optimism about declining mortgage rates, deciding on the best option can be daunting and confusing.
We can help you compare mortgage products and their costs to find the best deal for your specific situation from a wide range of lenders nationwide.
Expert mortgage advisors have a finger on the pulse of the latest mortgage market news. Whether you're a first-time buyer, looking to refinance, or investing in a buy-to-let, we can help you understand your mortgage options so you feel confident you're making the right choice.
To see what we can do for you, call us at 0203 900 4322 or book an appointment below.
