Bank of England Keeps Rates Steady Amid Inflation Fears, Mortgage and Savings Impact Explored
Rates Remain at 4.25%, Yet Three Voters Favor Decrease: Implications for Your Home Loans and Bank Accounts
The Bank of England has kept interest rates at 4.25%, as predicted by analysts, amid concerns about resurgent inflation. This decision comes as the Monetary Policy Committee, headed by Governor Andrew Bailey, treads carefully in these uncertain economic times.
What does this mean for mortgage borrowers?
Mortgage borrowers may view this decision as disappointing, but most would have seen little immediate benefit even if rates had been cut. Lenders tend to base their pricing on the long-term trajectory of interest rates, rather than reacting to individual base rate decisions.
Experts predict that interest rates will be cut one more time this year, reaching 4% before settling around 3.75-3.5%.
David Morris, head of homes at Santander, emphasizes that this year's rate cuts are already "priced in" to mortgage rates, so market-leading rates should continue to hover around the top end of the threes or lower end of the fours.
For those hoping to see a reduction in mortgage costs, the wait may be prolonged as homebuyers are advised to prepare for challenging economic times.
> Mortgage calculator: Find the best rates based on your property value
Outlook for Mortgage Rates
The future direction of mortgage rates depends on the market's perception of interest rates and the state of the overall economy. At present, the lowest fixed rate mortgage deals continue to hover just below 4%.
MPowered Mortgages offers a competitive three-year fixed remortgage deal at 3.82%. NatWest provides the lowest two-year and five-year fix at 3.92% and 3.95%, respectively, based on a 40% deposit. Most home buyers should be able to secure a rate between 4-5%.
Implications for Savers
With interest rates remaining at 4.25%, savers could experience a "stay of execution." Various analysts anticipate that savers will see reduced rates as the base rate falls later in 2025. However, some savings accounts, like easy-access Isas, are particularly at risk for cuts.
James Blower, founder of the Savings Guru, warns that easy access Isa rates are most vulnerable to cuts. As of the current tables, the top accounts pay around 5.4%, well above the current base rate of 4.25%.
The Bottom Line
While mortgage borrowers may find the Bank of England's decision to hold rates disappointing, savers could observe a temporary reprieve. The direction of mortgage and savings rates will depend on market expectations, inflation, and overall economic conditions.
Those approaching the end of their mortgage term or planning to remortgage soon may wish to consider a two or five-year fix. Mortgage advisor Aaron Strutt of Trinity Financial advises borrowers not to base their decisions on rate cuts in the near future.
Savers should actively monitor their savings rates, whether it's an easy-access account, fixed-rate account, or an Isa, and be prepared to switch to higher-yielding accounts if necessary.
Rachel Springall of rates scrutineer Moneyfacts Compare encourages savers to be proactive in reviewing their rates and switching accounts to secure better returns on their hard-earned cash.
- Mortgage borrowers may find the Bank of England's decision to keep rates steady disappointing, but most have already factored in this year's predicted rate cuts into their mortgage rates.
- For those hoping to see a reduction in mortgage costs, securing a rate between 4-5% could be a realistic expectation when remortgaging.
- With interest rates remaining at 4.25%, savers might temporarily benefit, but analysts anticipate that savings rates will be cut later in 2025, particularly for easy-access Isas.
- To secure better returns on their hard-earned cash, savers are advised to actively monitor their savings rates and switch to higher-yielding accounts, if necessary.
