In a move widely anticipated by market experts, the Bank of England announced on December 14 that it would maintain its Bank Rate at 5.25%, maintaining the status quo since the rate rose to its current level in August 2023. This decision comes after 14 consecutive rate increases since December 2021 when the interest rates were at a mere 0.1%. The Bank’s decision signals a potential plateau in the rate-rise cycle, with the next interest rate announcement scheduled for February 1, 2024.
The plateau in interest rates is attributed largely to the cooling inflation, as reflected in the latest figures from the Office for National Statistics, indicating a decrease in inflation from 6.7% in September to 3.9% in November.
The rate-rise cycle, marked by 14 consecutive increases, had significant repercussions on mortgage costs, particularly in the autumn of 2022 when market uncertainty triggered by former Prime Minister Liz Truss led to a surge in mortgage rates. Subsequent corrections in mortgage costs occurred, but as Bank Rates continued to climb, mortgage deals faced renewed upward pressure.
With the recent stabilization in interest rates, the cost of fixed-rate mortgages has started to ease, especially in the past few weeks. According to Better.co.uk, the average two-year fixed-rate deal stands at 5.12%, three-year deals at 4.96%, and five-year fixed rates at 4.92%. The best deals in each category are slightly lower, signaling a positive trend for borrowers.
However, for the estimated 1.4 million homeowners on variable rate deals, any adjustment in the Bank Rate immediately affects their payments. While those on fixed-rate deals are sheltered from immediate changes, approximately 1.6 million borrowers facing deal expirations in 2024 may encounter higher costs for new deals.
The article also touches on the state of house prices, reporting that Nationwide’s latest house price report showed a 2.2% average price fall in the year to November. However, Halifax reported a 1% decrease on average prices compared to the previous year.
The decision to maintain the Bank Rate reflects the Bank of England’s ongoing efforts to manage inflation and stabilize the economy. As inflation has eased, the central bank aims to ensure a return to normalcy, emphasizing the need to remain vigilant in the face of economic uncertainties.
The article concludes by highlighting the challenges of tracking mortgage costs and the importance of understanding how interest rate movements impact mortgage payments. Borrowers are advised to use mortgage calculators and stay informed about available deals in the evolving interest rate landscape.