Interest rates have been maintained at 4% for the second time in a row as the Bank of England remains cautious in the face of high inflation and the autumn budget.
Variable rate mortgage holders will be disappointed as the much-needed reduction in borrowing costs has not been implemented this time.
However, those looking to take out a fixed-rate mortgage – either to buy a home or to take out a new mortgage – will have already benefited from the lender cuts that have been implemented rapidly over the past week.
The Bank of England’s (BoE) nine-member Monetary Policy Committee (MPC) voted 5-4 to keep the base interest rate at 4%. The four in the minority voted for a reduction in interest rates to 3.75%.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partnerssaid: “Today’s vote, however, was a close decision, with the Monetary Policy Committee split 5-4 in favor of maintaining the current position, underscoring the delicate trade-off between supporting growth and curbing inflation.
“While CPI inflation remained stable at 3.8% in the 12 months to September, the BoE believes it has peaked and could gradually decline from here, raising hopes of further rate cuts ahead.
“However, with the Autumn Budget arriving before the next interest rate decision in mid-December, any tax increases from here could have a significant impact on the path of monetary policy.”
Chancellor Rachel Reeves hinted earlier this week that tax increases could be included in the budget on November 26, amid poor economic growth.
But there are also rumors that property taxes could be targeted, meaning many potential buyers have held back until there is more certainty about the costs of buying and owning property.
What consequences does today’s interest rate decision have for your mortgage?
If you have a variable mortgage or a tracker mortgage…
On a tracker mortgage? There will be no changes to your mortgage payments because your interest rate will remain the same. Those with such variable deals are also unlikely to see cuts as lending rates remain unchanged.
David Hollingworth, Deputy Director at L&C Mortgagessaid anyone on a standard variable rate (SVR) from their lender should take this as a trigger to review their options.
“It’s rarely a sweet spot for a mortgage borrower and those who want more cuts before committing to a new deal may want to think about how much that forbearance will cost in the meantime,” he explained.
“SVR rates are often in the range of 7% to 7.5%, while the best deals are now well under 4%, the savings can be thousands per year. A £200,000 mortgage with 25 year repayments at 7.49% would cost £1,477 per month.
“Reducing the rate to 4% would reduce the monthly payment to £1,056 per month, reducing costs by more than £420 per month.”
If you have a fixed rate contract…
For those with a fixed rate mortgage, you will not see any changes because your interest rate is fixed. However, if your deal expires, experts advise you start looking for a rate now in the next four to six months as lenders have slashed prices.
Thanks to a recent reduction by Nationwide, rates are as low as 3.64% for those with high net worth.
Sarah Thompson, group financial services director at Mortgage Scout, said: “With the autumn budget likely to focus on tightening public finances rather than supporting the housing market, borrowers are better off taking advantage of the progress we’ve already seen. Talking to a broker now and locking in a good rate could make a real difference before the next round of economic changes.”
If you are a first time buyer…
It’s a mixed bag for starters. Those house hunting and securing a mortgage deal will find that fixed rates have fallen recently and lenders have cut prices at all levels – including deals for first-time buyers.
But while prices may be lower, the fact that the BoE has kept rates at 4% does not help solve the overall affordability problem faced by first-time buyers.
A number of lenders have relaxed the rules on how much they can lend to those who have recently got on the property ladder, so there are certainly more options for those who may have been struggling a year ago.
But the advice is to talk to a broker who can help you find the most accessible lenders and the best deals.
Will there be another interest rate cut before the end of the year?
Most experts believe a 0.25% cut is in prospect on December 18, the next meeting of the MPC. This is partly due to the fact that their vote was so close today, but also because the markets had predicted another cut before the end of 2025.
David Hollingworth said: “Just a few months ago it looked like homeowners would have to give up the chance of another base rate cut before the end of the year.
“The better-than-expected inflation for September has changed that and opened the door for a further rate cut that will come earlier than previously forecast. The MPC decided that it is too early to implement that cut today, but the decision was a close one: 5-4.
“That will only further strengthen the market’s belief that December will bring another cut, as long as there are no nasty surprises in the meantime.”
This was echoed by Andrew Gall, head of savings and economics at the Building Societies Association (BSA), who said: “While CPI inflation remains high at 3.8%, it has not risen as much as feared and the Bank estimates it has peaked.
“A reduction in bank rates just before Christmas is therefore planned, although the policy announced in the autumn budget will also play a role in the MPC’s next decision.”