Mortgage rates should remain relatively stable after the Bank of England opted to hold the base rate at 5.25%.
The Bank of England (BoE) opted to hold the base rate at 5.25% at today's meeting.
The decision means mortgage rates will remain relatively stable over the coming weeks. Mortgage rates are priced based on the long-term outlook for the base rate, which is largely unaffected by today’s decision.
That’s broadly good news for borrowers, who have endured a volatile few years in the property market. Two-year fixed rate products at 75% loan-to-value sit a little under 4.5%, while some five-year fixed rate products sit below 4%. While those rates are higher than most borrowers are used to, they are far better than some of the 6%+ mortgage rates we saw this time last year when the market was still reeling from the mini-budget.
The BoE’s Monetary Policy Committee voted by a majority of 6-3 to hold the rate at 5.25%. Two members voted to increase to 5.5%, while one voted for a decrease to 5%. That’s the first three-way split since 2008.
Fixed or tracker?
Most borrowers are opting for two-year fixed rates. A five-year product at 4% might seem attractive now, but at the beginning of this week money-markets were predicting that the BoE would make a whole percentage point of cuts to the base rate during 2024, with more likely in 2025. In that case, those who take a two-year fixed now will likely be remortgaging to rates well below 4% in two years’ time, though given the economic volatility we’ve seen in recent years, statements about conditions years from now come with a high degree of uncertainty.
The popularity of tracker products is waning. They are generally priced 0.5% to 1% above the base rate, and so would require the BoE to conduct quite an aggressive cycle of rate cuts if tracker products are to present better value than the two-year products currently on offer. Which is right for you, however, will depend on your unique financial circumstances and your appetite for risk. We have experts on hand to discuss your options.
The property market
Conditions in the property market are now improving steadily. UK house prices rose 0.7% in January, Nationwide said on Wednesday. That pares the annual decline to -0.2%, up from -1.8% last month, which is the best reading since January 2023.
Mortgage approvals for house purchase, a good indication of future borrowing, ticked up to 50,500 in December, from 49,300 in October, the BoE said this week. That's up about a quarter compared to December 2022 but still a quarter below the five-year average.
Mortgage rates will continue to drive a moderate recovery in activity, and spring is now likely to be busy in the UK property market.
If you would like to understand your options or are approaching a remortgage and would like some advice, book a no-obligation consultation with one of our advisors.