September 19th, 2024
Following last month’s drop from 5.25% to 5%, the Bank of England (BofE) has chosen to hold the base rate steady at 5% in its latest announcement.
This decision signals a continued focus on economic stability as the UK navigates through a period of tempered inflation and shifting market conditions.
How the Base Rate Impacts Mortgage Rates
The Bank of England base rate is the interest rate that the BofE charges banks and lenders when they borrow money.
It is a key factor in determining UK mortgage rates across the country, as it directly influences how expensive or cheap borrowing becomes for lenders, which then trickles down to borrowers.
When the base rate rises, lenders typically pass on these higher borrowing costs to consumers by increasing mortgage interest rates.
This means higher monthly repayments for those on variable or tracker mortgage deals, and a more expensive borrowing environment for new buyers or those looking to remortgage.
Conversely, when the base rate falls, lenders are more likely to reduce their mortgage rates, potentially lowering monthly payments and making borrowing more affordable.
The type of mortgage a borrower has plays a significant role in how quickly they feel the impact of base rate changes:
- Variable and Tracker Mortgages:
These types of mortgages are directly tied to the base rate. A rise or fall in the base rate is usually passed on to the borrower almost immediately.
For those on variable-rate mortgages, a hold at 5% means their repayments will remain the same, but if the base rate decreases in the coming months, they could see their monthly payments fall.
Tracker mortgages follow the base rate specifically, so any movement—up or down—has a direct effect on repayments.
- Fixed-Rate Mortgages:
Borrowers with fixed-rate mortgages are protected from short-term base rate fluctuations for the duration of their fixed period. However, when their deal ends, they will need to remortgage at the then-current market rates.
If the base rate remains high, borrowers coming off a fixed-rate deal might face higher interest rates than when they initially locked in, leading to larger repayments.
On the other hand, if the base rate decreases by the time they remortgage, they could benefit from lower rates.
For those entering the housing market, the base rate is a critical factor in determining affordability. A lower base rate makes mortgage products cheaper, allowing new buyers to borrow more or manage lower monthly payments.
Conversely, a higher base rate increases borrowing costs, potentially pricing some out of the market or restricting their borrowing capacity.
If you’re a new buyer looking for advice on mortgages for first-time buyers, now could be an opportune time to explore your options.
What This Means for Borrowers Right Now
While the base rate has remained unchanged this month, there are growing signs that a rate cut could be on the horizon before the end of 2024.
Recent economic forecasts suggest that if inflation continues to ease, the BofE may lower the base rate to further support borrowers and stimulate the housing market.
To stay informed, you can follow the Bank of England’s monetary policy decisions.
For now, the stability provided by this rate hold is welcome news for homeowners and prospective buyers. Many lenders have unveiled rates which reflect this lower figure, headlined by Nationwide’s 3.99% deal which they first put out in July, marking the first sub-4% mortgage deal since February this year.
Future Outlook
As the year progresses, all eyes will be on the Bank of England’s next moves. If inflation remains under control and economic conditions stay stable, a further base rate cut could be possible before the end of 2024.
This would not only benefit those on variable-rate or tracker mortgages but could also lead to more competitive fixed-rate deals entering the market.
CMME remains committed to helping you navigate these market developments. To review your mortgage options and secure the best deal available, book a free, no-obligation consultation with our experts today.