When the Bank of England left interest rates unchanged at 5.25% on 1st February 2024, it was the fourth successive hold following fourteen consecutive rate rises.
It comes after a fall in inflation during the second half of 2023, with a modest increase to 4% announced in January. The bank is likely to be of the opinion that its interest rate decisions are having the desired effect of controlling inflation.
It has however warned against reducing the base rate too soon. The current rates may last throughout much of 2024, with a downward trend starting towards the end of the year and continuing into 2025.
Mortgage rates
With the base rate staying unchanged in September, November and December, mortgage rates fell slightly. However, the small increase in inflation in January led to a number of lenders putting their rates back up, particularly for borrowers with a high loan-to-value ratio, ie. those who had borrowed a high percentage of the value of the property. Some fixed rate deals were withdrawn from the market.
Rate increases are not expected in the short term in light of the spring budget.
Average 5-year fixed rates were 6.08% in July and by early February had fallen to 4.66%. The average 2-year fixed rate has dropped from 6.61% in July to 4.99%.
What does the interest rate situation mean for my mortgage repayments?
If you are on a tracker mortgage, your rates should stay unchanged if it is tracking the Bank of England base rate. Similarly, if you have a fixed-rate deal, nothing will change until you reach the end of the fixed-rate period. When that happens, you will be switched to the lender’s standard variable rate, which is likely to be substantially higher. This is generally the point at which people consider remortgaging.
Lenders who have signed up to the Mortgage Charter, introduced in July 2023, should allow borrowers to lock in a new fixed-rate deal up to six months before their fixed-rate deal ends. You can also ask if your existing lender has a better like-for-like deal up to two weeks before your new term starts.
If you are struggling to meet your monthly payments, your lender may be prepared to switch you to interest-only payments for six months. This would reduce you the amount you need to pay, but you would not pay off any of the capital during that time.
Alternatively, you may be able to extend the period of your mortgage, which would also reduce your monthly payments, although you would pay more overall.
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