Bank of England Base Rate Decision: Is this the Plateau and Will Interest Rates Go Down?

a model house with a sack next to it labelled mortgage interest rates a hand holding a magnifying glass over an arrow pointing down
Published on 26 September 2023

The Bank of England’s (BoE) recent base rate decision on 21 September has generated waves of anticipation within the financial sector. For homeowners and potential property buyers, these announcements carry a real significance, as they have the potential to directly impact mortgage rates. We take a look into the implications of the Bank of England’s decision to keep the base rate at the same level – 5.25% and what it means for those navigating the intricate world of mortgages.

The Latest BoE Base Rate Decision

The Bank of England reduced base rate to just 0.10% at the beginning of the Covid pandemic in March 2020. The base rate had been below 1% for nearly 15 years. It made its first increase to the base rate in December 2021 and at every meeting of the MPC since this, the increase has continued. The Bank of England is tasked with controlling inflation and the base rate is one of the major drivers it uses to do this. On 21 September, the Bank of England unveiled its verdict on the base rate – keeping the rate the same. Many had expected the base rate to continue to increase with many predicting a peak at 6%. A few days earlier, the official inflation figures for the UK were released and they were surprisingly lower than expected. Inflation had been in double figures and the Bank of England had made 14 consecutive increases to the base rate in its attempts to help control this. This lower-than-expected inflation figure sparked lots of discussion about if there was a need for the “expected” further increase in the BoE base rate. Although the recent inflation figure of 6.7% is still higher than its target of 2% there is an underlying hope that the current measures are working and inflation will continue to fall. Below is a table of the increases since December 2021.

Date ChangedRate
03 Aug 235.25
22 Jun 235.00
11 May 234.50
23 Mar 234.25
02 Feb 234.00
15 Dec 223.50
03 Nov 223.00
22 Sep 222.25
04 Aug 221.75
16 Jun 221.25
05 May 221.00
17 Mar 220.75
03 Feb 220.50
16 Dec 210.25
19 Mar 200.10
Source: Bank of England Database: Official Base Rate History

Anticipation further Rate Hike

It’s possible that looming over the financial landscape is the prospect of a further rate hike. With inflationary pressures continuing, experts are speculating that the Bank of England might still need to opt for further increases in the future. This could potentially mean higher monthly mortgage payments for borrowers across the nation. Or further restrict buyers from entering the housing market. We discussed earlier this year the concern for homeowners and increasing rates – so is the the end?

Is This the Peak? Or Will Rates Plateau?

With the BoE’s recent decision to keep the base rate at 5.25% many are now asking if this is the “peak” or are more increases on the horizon? Looking back at the decisions made by the Bank of England, it has adjusted rates in response to various social and economic factors. The reduction in energy prices, the ongoing conflict in Ukraine and the looming general election will all continue to impact these. The direction of these adjustments may depend on how these factors evolve in the coming months.

The Potential for Rates to Plateau.

An intriguing scenario to consider is the possibility of rates plateauing. After a period of consistent increases, rates may stabilize. This could offer some much-needed respite to borrowers who have witnessed their mortgage costs escalate.

Contemplating a Rate Decrease

On the flip side, it’s essential to acknowledge that rates can decrease as well. Economic conditions are dynamic, and the Bank of England must adapt to a number of situations. For borrowers with variable or tracker mortgages, this could result in lower monthly payments, easing financial burdens.

The Direct Impact on Mortgage Rates

The Bank of England’s base rate decision holds direct implications for homeowners and those actively participating in the property market. Fixed-rate mortgages may shield borrowers from immediate hikes, providing a sense of financial security. We have already seen fixed rates begin to fall – a further sign that the long-term view is that rates may have peaked, and many lenders expect to see rates begin to fall. But if rates fall below your fixed rate, then you could end up on a higher rate. Fixed rates offer security of knowing what your monthly payment will be for the term of your deal. The fixed rates that are now available have already started to fall despite base rate remaining the same. This is down to a number of factors – as lenders compete for market share in what has become a more difficult market. They are willing to sacrifice their short-term profit margins with the view that longer term (during the term of the fixed rate mortgage) rates will reduce. This is good news for everyone that is looking for the stability and security that comes with a fixed rate product.

In contrast, variable and tracker mortgages could experience adjustments that will mean an increase or decrease to your monthly payment. Even a small percentage shift can significantly influence monthly mortgage payments. For example, on a typical £200,000 repayment mortgage on a 25-year term, a rate increase of 0.25% would mean an increase of around £30 in their monthly mortgage payment. Any further rate rises would be on the back of base rate increasing from 0.10% to its current rate of 5.25%. That’s already more than 20 rounds of £30 a month increases – a total of £600 per month or more than £7,000 a year. These increases will have already stretched many households’ monthly budgets and any further increases could severely affect household finances. But these products offer some flexibility and avoid the risk of being locked into a higher rate if rates do begin to fall even further. And if they do, then your monthly payment will also decrease. But the prospect of further base rate increases could still be on the cards – and this would mean an increase to your monthly payments.

Prudent Advice for Homebuyers and Borrowers

Given the current economic climate and the uncertainty surrounding interest rates, individuals thinking about a property purchase or coming to the time for remortgage or looking at the possibility of refinancing other debts, should stay well-informed. Seeking guidance from professionals such as mortgage brokers, like 177 Mortgages, can provide clarity when navigating the ever-evolving interest rate landscape. Our expertise is instrumental in helping borrowers make well-informed decisions tailored to their unique financial circumstances.

As the next Bank of England’s announcement date is 2 November, it’s crucial for homeowners and prospective property buyers to remain vigilant. We have more than a month to see how lenders and the wider financial markets react to this recent decision to keep the base rate the same. The implications of rate adjustments can be substantial, and understanding these is paramount. We strongly urge you to stay informed, monitor financial news updates, and, when the time comes, reach out to experts like us for personalised advice and assistance. Whether this decision marks the beginning of a new trend or an isolated freeze before rates continue to move, being well-prepared is the key to securing your financial future.

177 Mortgages provide mortgage brokerage services to help individuals find and secure the right mortgage for their needs. We have access to a wide range of mortgage products from various lenders, ensuring that our clients have a broad selection to choose from. And more importantly we don’t charge fees for any of our services, making our expert help accessible to a wide range of borrowers. Not only that we offer expert advice and support throughout the mortgage application process, from initial consultation to final approval. Get in touch if you would like to discuss your current mortgage or the prospect of buying your first home.

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