The Bank of England has kept interest rates at 4.75%, meaning borrowers will now have to wait until 2025 before they have any chance of a reduction in their mortgage repayments.
The decision to maintain interest rates will not come as a surprise as it was widely expected that the central bank’s decision-makers, the Monetary Policy Committee (MPC), would maintain the base interest rate at current levels.
This is because wages are rising more than expected this year and inflation is rising by 2.6% – well above the Bank of England’s (BoE) target of 2%.
It will be disappointing news for tracker or variable rate mortgage customers hoping for an early Christmas present from their mortgage providers.
But for customers who already had a fixed interest rate, it would have made no difference because the repayment costs are fixed.
Meanwhile, anyone in the process of taking out a fixed rate mortgage will have noticed that lenders have made price adjustments in the run-up to today’s decision. This is because they use Exchange rates to determine the price.
When will the Bank of England cut interest rates and by how much?
The big question on everyone’s lips today will be: if rates aren’t cut before Christmas, when will they be cut?
Experts think the BoE will cut rates at least twice in 2025, but they are not sure when.
Rosie Hooper, financial planner at Quilter Cheviot, said: “There are expected to be at least two cuts to the basic rate of 0.25% next year. These cuts could provide much-needed affordability relief, especially for first-time buyers and those looking to remortgage.”
Meanwhile, David Hollingworth, associate director at L&C Mortgages, agreed there would be cuts but did not think they would be drastic. “Further cuts to the base rate are expected next year, but the Bank of England has consistently taken the line that these cuts are likely to be slow and steady,” he said.
Nicholas Mendes, mortgage technical manager at John Charcol, explained that there are several factors that influence mortgage rates, not just interest rates, and this can affect how much we pay for our mortgages.
“Mortgage rates are expected to decline in 2025,” he said, “but the magnitude and pace of this reduction will depend on several factors. According to current projections, the MPC will cut interest rates by 0.25% every quarter until mid-2025. However, forecasts indicate that interest rates may only fall to around 3.5% in early 2026.
“A crucial factor in this scenario is the role of swap rates, which lenders use to price fixed-rate mortgages and manage risk.
“Swap rates reflect the cost to lenders of borrowing money over the life of a mortgage and reflect market expectations for future interest rates. When swap rates rise – perhaps due to expectations of fewer interest rate cuts – mortgage rates often follow suit, even if bank rates are cut.”
He said stable market conditions would be “essential” if we were to see major rate cuts inflation should consistently remain below the BoE’s 2% target.
“A stable economic environment would encourage lenders to offer more competitive rates,” he added. “Additionally, global economic factors such as energy prices and supply chain stability can also influence mortgage rate trends.”