What Does Today's Interest Rate Hold Mean for Mortgages?
The Bank of England has announced it will keep the Base Rate at 4.5% this month. This comes after a 0.25% reduction in February, marking the third 0.25% cut since August 2024.
The Bank’s priority is to find the right balance between maintaining inflation close to its 2% target and supporting the overall health of the economy.
Inflation recently rose to 3%, up from 2.5% the previous month. While this is far lower than the peak of over 10% seen in 2022, it still plays a role in the Bank's cautious approach to reducing the Base Rate. Global economic factors also influence their decisions on when and by how much to lower rates.
Although today's hold was expected, the markets anticipate further cuts throughout 2025, potentially bringing the Base Rate down to around 3.75%.
Recent Trends in Mortgage Rates
Mortgage rates have remained relatively stable in recent weeks. Experts predict they could gradually decrease through 2025, with average 2-year and 5-year fixed rates likely falling to around 4% by year’s end. You can explore more about the 2025 housing market and our predictions here.
In 2023, 2-year fixed-rate deals were significantly more expensive than 5-year options, typically around 0.5% higher. However, this gap has been narrowing, and we might soon see 2-year mortgages with lower average rates than 5-year deals.
For example, the average 5-year fixed rate has dropped from 6.08% in July 2023 to 4.73% this week, while the average 2-year fixed rate has decreased from 6.61% to 4.89%. You can check the current average mortgage rates for various terms and deposit sizes here, updated regularly.
Expert Insights
Matt Smith, our mortgage expert, comments: “With the expected interest rate now behind us, all eyes will be on the May decision, where a second cut is anticipated. Since February’s decision, mortgage rates have eased slightly but remained stable. Lenders are trying to offer competitive rates, especially with the busy spring and summer home-moving months ahead. However, there isn’t much room for further rate reductions just yet. Hopefully, the second cut will trigger more downward movement and bring average rates closer to 4% rather than 5%.”
He adds, “Right now, the best available mortgage rates are on 2-year deals, not 5-year ones. While these lower rates are mainly for those with larger deposits, the short-term outlook for mortgage rates is improving, and we could see more borrowers opting for shorter-term deals.”
What Does the Base Rate Hold Mean for Your Current Mortgage?
The Bank's Base Rate changes can affect how much interest you pay on loans, including mortgages. If you're on a fixed-rate deal, your monthly payments won’t change until the end of your deal. For those on a variable or tracker mortgage, this month’s Base Rate hold means your payments will stay the same.
If your fixed-rate mortgage is nearing its end, you may already be considering your next deal. Our remortgage calculator can help estimate your new monthly repayments with your current lender or the 10 largest UK lenders. You can also find the current average remortgage rates here.
To get a clearer idea of how much you can borrow, you can use a mortgage calculator or apply for a Mortgage in Principle to move closer to securing a mortgage offer.
The Mortgage Charter, introduced in July 2023, provides additional flexibility for borrowers who may be struggling to keep up with payments or are nearing the end of their fixed-rate term. This initiative encourages lenders to allow borrowers to lock in a new deal up to six months before their current rate expires. Of course, borrowers can also explore remortgaging with another lender, but this process involves a full application, including income checks, legal procedures, and potential property valuations.
It's important to plan ahead and explore your options a few months before your current deal ends to avoid being moved onto your lender’s Standard Variable Rate, which typically costs more. The current average for SVRs is 7.51%.
When Could Interest Rates Fall?
The Bank of England’s Monetary Policy Committee meets every six weeks to decide whether interest rates should rise, fall, or stay the same.
Historically, after interest rates rise, they often remain flat for a while before gradually decreasing.
The Bank is likely to be cautious about reducing rates too soon, so as not to reverse the progress made in bringing inflation back toward the 2% target. However, this could change depending on future economic developments.
The next interest rate decision will be announced at 12:00 PM on May 8, 2025.