The Bank of England has finally decided to hit the pause button on the base rate, holding it steady at 5.25%. After fourteen consecutive rate hikes since December 2021, they've decided to give us a breather. But what does this mean for homeowners?
Why a base rate pause?
So, why did they decide to do this? Some experts thought they'd hike up the base rate by 0.25%, while others were betting on the Monetary Policy Committee (MPC) keeping things stable due to a dip in inflation. In August, the official consumer prices index (CPI) fell to 6.7%, which is still much higher than the Bank of England's 2% inflation target.
The Bank of England has implemented rate hikes to tackle rising inflation for almost two years. The plan was to make borrowing more expensive, hoping consumers and businesses would borrow less, and inflation would slow down. With inflation showing clear signs of slowing in August, any further hikes have been put on pause.
What does it mean for your mortgage?
How does this affect your mortgage? If you're an existing mortgage holder, especially if you're on a variable rate mortgage, this pause means you can breathe a sigh of relief. As these mortgages literally ‘track’ the base rate, when it doesn't change, your monthly mortgage payments don’t suddenly increase.
Mortgage rates have been on the rise recently. If your mortgage is due to come to an end, it's been a bit of a nail-biting time. On the plus side, if you've got a fixed-rate mortgage, you're somewhat protected because your rate is locked in for a specific time. And if you've been keeping an eye on the mortgage market, you may have noticed rates going down lately, which is great news.
For instance, the average two-year fixed mortgage rate has dropped to 6.58%, while the average five-year fix is at 6.07%. Yes, rates are still higher than they were two years ago, but things seem to be moving in the right direction.
If you are looking to remortgage, it pays to start conversations with an independent mortgage broker as early as you can. Not only can being mortgage document ready save you money, but the recent Mortgage Charter was established to help those remortgaging in the current climate.
What's the future of fixed rate mortgages?
The level of fixed-rate mortgages will not depend so much on the base rate pause, but where financial experts think the base rate is heading. Lenders adjust mortgage rates based on future forecasts and how the base might be affected with inflation at specific levels.
Earlier this year, when inflation was high, the market expected further base rate hikes. This had an affect on fixed rate mortgage products. However, when inflation started to fall in June, some of the larger mortgage lenders began lowering rates, and was welcoming news for potential homebuyers and those thinking about remortgaging.
If the positive trend in inflation continues there may be better fixed-rate mortgage deals further down the line. That's the light at the end of the tunnel for those of us who've been waiting for things to stabilise before making our move.
In summary, the base rate pause means that if you're already a mortgage holder, you can take a breath. Your monthly payments aren't suddenly going to surge, and if you're in the market for a new mortgage - especially a fixed-rate one - you might just stumble upon some better deals in the coming months.
Talk to Tony
Is your mortgage deal due to end in the next 12 months?
By speaking with our independent mortgage adviser, Tony, 6-9 months before your fixed mortgage term expires, you can ensure you're well-prepared for what lies ahead. You will also give yourself time to make the most of the Mortgage Charter's benefits, should you need you.
Your home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. A fee may be charged for mortgage advice. The amount will depend on your circumstances.
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