What BOE’s Interest Rate Hold Means For Your Mortgages

On December 19, the Bank of England (BoE) announced that it would keep the Base Rate steady at 4.75% for the month. Earlier this year, the BoE had lowered the rate twice, cutting it by 0.25% each in August and November.

Those rate adjustments are part of the Bank's effort to combat inflation, which had soared above 10% in early 2023, far exceeding the government's 2% target. The BoE's goal is to balance controlling inflation with supporting economic growth.

Although the Base Rate remains unchanged for now, financial markets anticipate further reductions throughout 2025, possibly bringing the rate down to around 3.75%.

What About Mortgage Rates?

Mortgage rates have stayed relatively stable in recent weeks. Analysts expect rates to gradually fall in 2025, with 2- and 5-year fixed mortgage rates possibly plunging to about 4% by the end of the year.

Currently, the average 5-year fixed mortgage rate has tanked from 6.08% in July 2023 to 4.82%. Similarly, the average 2-year fixed rate has slumped from 6.61% to 5.06%.

What Are the Experts Saying?

After a turbulent year for the mortgage market, the BOE's decision to hold the Base Rate at 4.75% came as no surprise. Though it may not be the holiday gift some hoped for, it reflects the reality of inflation remaining near the higher end of projections and wages growing faster than expected.

Experts predict mortgage rates are unlikely to slide in the coming weeks. However, as 2025 unfolds and the home-buying season picks up, lenders may start lowering rates to attract more borrowers.

Moreover, as the current Stamp Duty relief expires in April, lenders might also find room to cut rates further to boost activity.

Looking ahead, markets are now expecting three Base Rate cuts in 2025, down from the four predicted just weeks earlier, showing how quickly the economic outlook can change. And mortgage rates are expected to inch closer to 4.0% next year, although that will depend on factors like geopolitical developments and inflation trends.

What the Base Rate Hold Means for Your Mortgage?

The Bank's Base Rate influences the interest costs on loans including mortgages. If you're on a fixed-rate mortgage, your payments will stay the same until your deal ends. For those on variable or tracker mortgages, the decision to hold the Base Rate means your monthly payments will remain unchanged for now, too.

When Could Interest Rates Start Falling?

The Bank's Monetary Policy Committee (MPC) meets every six weeks to decide whether interest rates should rise, fall, or stay the same.

Historically, after a period of rate hikes, rates tend to plateau before gradually tumbling. The BoE will likely be cautious about cutting rates too soon as it could reverse progress made in bringing inflation back to the 2% target.

If the economy stays stable and no major disruptions occur, the first rate cut could happen before the end of the year with further cuts likely throughout 2025.

The next MPC announcement on interest rates is scheduled for noon on February 6, 2025.