Interest rates will remain at a 16-year high of 5.25% until August, at least after the Bank of England voted to leave them unchanged.
While the bank’s Monetary Policy Committee (MPC) was widely expected to maintain the base rate, the decision will be a blow to many homeowners who hoped a cut could ease pressure on repayments.
Despite this, seven members of the nine-member MPC voted to keep interest rates at 5.25% Inflation falls to the target level of 2%.
However, the remaining two members voted for an interest rate cut from 0.25% to 5%.
Paul Broadhead, head of mortgage and housing policy at the BSA, said: “The decision to keep interest rates at 5.25% will be very disappointing news for [mortgage borrowers]but also for people who want to buy their first home.
“With two of the MPC’s nine members voting in favor of a cut today, it is clear that some are clinging to even more overwhelming evidence that inflation can remain consistently at or close to target.
“We still expect bank rates to fall this year, but this will happen much later and slower than we expected earlier this year.
“Homeowners coming to the end of their fixed-rate mortgages this year will need to prepare for an increase in their mortgage payments.”
For weeks, August was the date when markets had predicted the Bank of England would cut interest rates. But what are the prospects for a base rate cut in the summer?
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, thought the odds were now slim.
“What may also be concerning,” she said, “is the lack of movement in the voting pattern of the rate-setting MPC, with seven in favor of maintaining the status quo and two in favor of a cut – which reflects the decision during the meeting in May. It means that hopes for a summer interest rate cut in August could also be dashed.
“Despite inflation reaching the 2% milestone in the 12 months to May, the BoE is erring on the side of caution as it waits to assess whether inflation in the services sector – which stood at 5.7% – will remain high to stay.”
She added: “The BoE’s decision also prevents a rate cut from being politicized in the run-up General election election day.”
What impact will today’s decision have on mortgage lenders?
If you’re already locked into a fixed rate, your refunds will remain the same. This also applies to those who have a tracker deal, which is in line with the basic rate.
It is borrowers coming to the end of their fixed rate contracts in the coming months who will be most affected by today’s decision.
Haine said: “Those nearing the end of their product’s fixed rate term should not wait too long for a better deal or risk returning to their lender’s ultra-expensive rates. standard variable rate (SVR)where the average SVR is still above 8%.
“As the number of mortgage delinquencies increases for homeowners, finding the best possible deal rather than no deal at all will be the best option for now.”
Data from Moneyfactscompare.co.uk shows that the average SVR is currently 8.18%.
Meanwhile, the analysis also found that the average two-year interest rate is currently 5.93% and the typical five-year interest rate is 5.50%. These have both increased since last month, but are lower than in December.
Rachel Springall, financial expert at Moneyfactscompare, said: “At the moment it is cheaper to take out a five-year fixed mortgage than a two-year deal, based on the average interest rate, which has been the case since October 2022 the case is.
“First-time buyers who are struggling to get their foot on the property ladder and don’t have the ‘Bank of Mum and Dad’ to lean on may feel that getting a mortgage is too far out of reach at the moment.
“Regardless, the uncertainty surrounding interest rates should make it crucial for borrowers to seek advice from an independent financial adviser to assess all available options.”
If you were concerned that you might not be able to afford your repayments, Paul Broadhead offered the following advice.
“Anyone concerned that they may experience financial difficulties in the coming months,” he said, “should contact their lender as soon as possible, preferably before they miss payments. They have a range of practical, tailored support available for anyone who is struggling.”