The Bank Rate has remained unchanged for the sixth time in a row since it was raised from 5% to 5.25% in August 2023. Meanwhile, average mortgage rates on two- and five-year fixed rate deals have increased for the first time in six months.

The Bank of England has kept the Bank Rate at 5.25% for the sixth time in a row.

The Bank’s Monetary Policy Committee (MPC) has voted by a majority of 7-2 to keep the Bank Rate unchanged at 5.25%.

Two members wanted to cut the rate by 0.25%, to 5%. This marks a slight shift from the last vote in March, when only one member voted to reduce the Bank Rate.

The Bank Rate, sometimes known as the ‘base rate’ or ‘interest rates’, affects the rates that lenders charge their borrowers. It has remained at a 16-year high of 5.25% since last August.

Why has the Bank Rate been held again?

The Bank has been using interest rates as a way of controlling inflation. It raised interest rates from 0.1% at the end of 2021 to 5.25% last August.

The good news is that the Consumer Prices Index (CPI), a key measure of inflation, has fallen from 11.1% in October 2022 to 3.2% today.

However, 12-month CPI inflation dropped less than expected in March, prompting some people to speculate that interest rate cuts could be pushed back. The Bank has an inflation target of 2%.

The latest decision on interest rates was widely expected. The Bank said that while progress in key economic data is ‘encouraging’, it needs more evidence that inflation will stay low before it cuts interest rates.

The Bank added that lower oil and gas prices mean that inflation is expected to fall to around 2% before ‘increasing slightly’ in the second half of the year, to around 2.5%. It’s hoped it will then edge down again.

What does this mean for borrowers?

Borrowers on variable or tracker mortgages will be relieved that their rate is unlikely to go up. Though they’ll be disappointed the Bank Rate wasn’t cut.

According to Moneyfactscompare.co.uk, the average standard variable rate (SVR) is at 8.18%, down from 8.19% last November. The rate has stayed at this level since the start of April.

Meanwhile, borrowers locked into fixed-rate mortgages will not be impacted – yet. But borrowers who come off fixed-rate deals and remortgage soon are likely to see their mortgage repayments jump, squeezing household budgets further.

Annual mortgage repayments for the average buyer are now a staggering 61% higher than they were three years ago, before mortgage rates started climbing.

It means that in pure monetary terms, they have soared from £7,100 to £11,400. Two thirds of that hike is fuelled by higher mortgage rates, while one third is due to higher house prices.

First-time buyers are finding it tricky to afford mortgage repayments in the first place. Because of recent interest rate rises, mortgage affordability is now the biggest challenge for first-time buyers, according to the Building Societies Association (BSA).

But Nick Leeming, chairman of Jackson-Stops, points out that interest rates of around 5% are not high by historical standards.

“It’s important to keep in mind that, while the past 18 months have been a time of economic headwinds, the exceedingly low rates that became the norm in the 2010s were the exception and not the rule,” Leeming explains.

“A pivot towards lower rates in June, even if only minor, would help to ease affordability constraints at the lower end of the housing market and help to ensure chains don’t break down once sales have been agreed.”

What is the forecast for interest rates? 

The Bank is generally expected to cut interest rates this year (assuming there’s no surprises in store). But opinions on when exactly this could happen, and by how much, naturally vary.

Mark Harris, chief executive of mortgage broker SPF Private Clients, believes it’s time for rate setters to be bold and start reducing rates: “The Bank was always likely to hold rates this month, and we expect June’s meeting to have a similar outcome.

“That said, by that point there should have been two further lots of improving inflation data, reinforcing the argument for cutting rates by the end of the summer.”

Leeming adds: “While no change was widely assumed, the expectation is that June’s meeting will finally break the base rate deadlock and initiate a rate cut.”

Will mortgage rates go down in 2024?

The housing market has been relatively stable in recent months. The number of sales agreed are now 12% higher than this time last year.

This improving picture is echoed in the Bank of England’s recent mortgage approval figures.

The number of mortgages given the green light in March stood at 61,300, edging up from 60,500 the previous month. Monthly mortgage approvals are now close to the 65,000 level seen during the three years leading up to the pandemic, says Hina Bhudia, Partner, Knight Frank Finance.

But in a blow to borrowers, mortgage rates have climbed in recent weeks. Big names including Nationwide, NatWest and Santander have raised rates on fixed-rate mortgages.

According to Moneyfactscompare.co.uk, the average two-year and five-year fixed rate was 5.91% and 5.48% respectively on 1 May, compared with 5.8% and 5.39% at the start of April.

That said, two major lenders provided a glimmer of hope this week, cutting some rates. Harris says: “With Barclays and Lloyds already announcing reductions this week, hopefully it is only a matter of time before other lenders follow suit.”

Our Executive Director of Research, Richard Donnell, believes that even if inflation and interest rates edge down, mortgage rates are unlikely to drop much further this year.

Donnell explains: “Lower interest rates would likely result in further modest declines in mortgage rates but how far depends on how low money markets see base rates falling.

“Economists currently expect base rates to fall to 3.5% by the end of 2025, which would imply mortgage rates remaining in and around the 4%+ range.”

Despite an improved outlook overall, Lucian Cook, head of residential research at Savills, also thinks it’s unlikely there’ll be a further “meaningful” fall in mortgage rates this year.

He adds: “However the highly competitive nature of the mortgage market has meant that mortgage costs have already nudged down this year, and have been much less volatile. Combined with an improved outlook for economic growth, and increased buyer confidence, we can now expect modest house price growth this year.”

Key takeaways

  • The Bank of England has voted by a majority of 7-2 to keep the Bank Rate at 5.25%
  • It’s the sixth time in a row that the rate has remained unchanged
  • The Bank says that while progress in key economic data is “encouraging”, it needs to see more evidence that inflation will stay low before it cuts the Bank Rate.