The latest on interest rates

The Bank of England (BoE) has declared that it will maintain the Base Rate at 5.25% for the third consecutive month, echoing the decisions made in September and November. This follows on from a series of 14 consecutive rate hikes.

The Bank had been raising interest rates to combat soaring inflation levels, which surpassed 10% early in 2023. This significantly exceeded the government's 2% target. The government had aimed to reduce inflation to 5% by the year's end.

In November, a notable drop in inflation to 4.6% suggested that the Bank's strategy to address inflation was effective, reducing the likelihood of further Base Rate increases. Striking a balance between curbing inflation and maintaining overall economic health, the Bank's recent announcement of a third consecutive hold suggests confidence in the results of its anti-inflation plan.

What is the latest news on mortgage rates?

Regarding recent developments in mortgage rates, the Base Rate's stability in September and November coincided with a gradual decline in mortgage rates over 20 weeks. The average 5-year fixed rate fell from 6.08% in July to 5.07% in December, while the average 2-year fixed rate dropped from 6.61% in July to 5.48%.

The fall in swap rates, which influence lenders' underlying mortgage costs, contributed to increased competition among lenders in offering lower rates to borrowers, particularly after the recent decrease in inflation.

What are the experts saying?

Experts, including mortgage specialist Matt Smith, believe that the Base Rate has most likely reached its peak.

Smith states: “Many of the factors that contributed to the hold in September and November are continuing, and a flattened Base Rate, which could begin to fall in 2024, is looking increasingly likely.”

While the current hold could potentially lead to further drops in mortgage rates, lenders may exercise caution until after Christmas, in readiness for the predicted surge in demand in January.

The impact of the Base Rate hold on current mortgages:

For existing mortgages, the Base Rate hold means stability in monthly payments for those on variable or tracker mortgages. Alternatively, for those nearing the end of fixed-rate deals, the Mortgage Charter offers options to secure a new deal up to six months before the current deal ends, offering flexibility for borrowers.

When will interest rates begin to decrease?

Anticipations for interest rate changes suggest a flat Base Rate going into 2024, with potential reductions predicted later in the year. Using history for reference, after a surge, interest rates tend to remain flat for a while before coming down.

However, only time will tell. The next decision on interest rates is scheduled for February 1, 2024.