What the Base Rate means for your Mortgage
On 9th May, the Bank of England (BOE) made the decision to hold the base rate at 5.25% The rate has remained the same since August 2023 despite the hope that it would start to fall this year. In our latest market analysis, Adam Nanson, Managing Director at Your Mortgage Expert looks at what the Base Rate means for your mortgage.
What is the situation with Mortgage Rates now?
“You’d think – with the base rate remaining the same since August – that mortgage rates would have been fairly static over the last six months. The fact that they haven’t been static shows that the BOE base rate only influences mortgage rates.
“This is because Mortgage Rates are also influenced by Mortgage Swap Rates. This is essentially how much lenders charge to lend to each other.
“As a result, Mortgage Rates have in fact been quite volatile recently. And lenders continue to pull rates with little or no notice. In fact, research by MoneyFacts found that the average mortgage deal is only available for 15 days before it is removed from sale***.
“Notwithstanding this, rates are still lower now than they were last summer**. And there has been quite a lot of competition from the lenders for business. Meaning that – if you’re fixing a new mortgage now – you’ll probably be in a better position than if you’d fixed a year ago.”
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When will the base rate start to go down?
“There are some reasons to feel confident about the base rate starting to go down soon.
“The BoE governor Andrew Bailey has said he is optimistic things are moving in the right direction. In fact, two members wanted to cut the base at this latest rate review in May.
“Many are now predicting that the base rate will start to decrease over the summer. Optimistically we might say August. But most of the lenders are now pricing mortgage products for a decrease in September****.
“The BoE are predicting that the Base Rate will be 4.5% by Q2 2025 and 4% by Q2 2026*. But this is just a prediction based on what we currently know. If inflation doesn’t behave as expected or there are external influences on our economy, then this can change.”
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What should I do about my mortgage?
“If your fixed term rate is coming to an end or you are thinking about getting a new mortgage, speak to us. As an experienced mortgage adviser, we will review your situation and make a recommendation based on your circumstances.
“Mortgage offers are generally valid for six months. So if there is a low deal, we would recommend you lock it in early as deals aren’t hanging around. You can always switch to a different deal if rates do fall before you are due to fix your rate.
“Some clients are choosing a more flexible options such as tracker mortgages. A Tracker Mortgage is sometimes known as a variable rate mortgage. It usually tracks the Bank of England’s base rate. When rates are high, if the base rate does peak and then starts to fall, a tracker will allow you to take advantage of falling rates.
“Tracker rates aren’t for everyone. And we will take the time to explain the options to you to ensure we make the most appropriate recommendation.”
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* https://www.bankofengland.co.uk/monetary-policy-report/2024/may-2024