The Bank of England has announced that it will be holding the base interest rate at 5.25 per cent for the second time in a row.
The Bank’s Monetary Policy Committee, which makes the decisions about the rates, made the choice saying it expects a sharp slowdown in inflation to 4.8 per cent in October’s figures.
The decision came after the Bank increased the base interest rate 14 consecutive times before pausing the rises in September.
For families across the UK, the increases have meant that those with a variable-rate mortgage have been paying more each month, and first-time homebuyers and people switching from fixed-rate mortgages have been paying more for new home loans.
Now, mortgage brokers expect the rates to drop slightly, but even if their estimations are accurate, rates will remain significantly higher than what they used to be.
Why have mortgage rates been rising?
The Bank of England base rate is the key factor in setting mortgage rates.
Recent high inflation and pay increases indicate that interest rates will probably rise more than anticipated, increasing borrowing expenses.
Liz Truss’s mini budget last October sparked a turbulent time for mortgages as deals went up against soaring inflation in the early part of 2023. However, inflation has begun to cool and the cost of mortgages has also been coming down from their peak.
Forbes reported this week that the average cost of a two-year fixed rate deal across all borrower types is 5.65 per cent.
How are mortgage rates linked to interest rates?
Only some mortgage rates are affected by interest rates. How much these will affect your mortgage depends on what type you have. Take a look at our guide to mortgage types for first-time buyers for more information.
If you are on a fixed-rate mortgage, you don't need to be immediately concerned about an increase in interest rates. Regardless of whether interest rates increase or decrease over the agreed-upon time frame, whether that’s two years, three years, five years or more, your mortgage rate and monthly payments will not change.
You will, however, automatically switch to your mortgage lender's standard variable rate (SVR), which is determined by the Bank of England base rate, after your fixed term expires.
You'll probably pay a higher interest rate on your mortgage if this has increased and your monthly payments will go up.
Discounted, tracker or SVR mortgages are usually affected by interest rates, therefore, if you are on one of these mortgages you can expect increases.
What is the next interest rate decision?
The Bank of England’s Monetary Policy Committee made their most recent announcement on Thursday, November 2.
It reveals its decisions about interest rates every six weeks, alongside factors that have led to their decision. This means that the next announcement will take place in mid-December.
