- Bank votes 6-3 to hold rates at 5.25%
- Rates will remain at 15-year high until February
- Markets are now pricing in cuts starting from May 2024
- Savings rates and mortgage rates expected to drop
Laura Suter, director of personal finance at AJ Bell, comments:
“The Bank of England has held interest rates for the third time, with six ratesetters voting to hold them at 5.25%, while three wanted to push rates up to 5.5%. It means Base Rate remains at its 15-year high and we have a reprieve from any further moves in the rate until February, when the MPC next meet.
“You could get whiplash from how quickly markets have moved from predicting the timing and size of the next interest rate hike to talking about sizeable rate cuts. Despite protests from many at the Bank of England that rate cuts aren’t on the agenda just yet, markets are now pricing in a full percentage point cut to interest rates by the end of next year. What’s more, the markets are betting on the Bank taking the axe to rates from as early as May next year, rather than the previous expected timing of Autumn.
“All this is good news for mortgage holders and less favourable news for savers. And despite the Bank taking no action today, it’s time for anyone with a mortgage or savings to take some action if they haven’t got their financial ducks in a row yet.”
Savings:
“We’ve already seen cuts to savings rates, particularly in the fixed rate market, and that’s a trend that’s going to continue. These cuts will gather speed as we near the point where Base Rate starts to drop. But the bigger impact will be on the fixed-term savings market. These accounts base their rates not just on what interest rates are doing right now, or next month, but also on what they will be doing for the entire term of the account.
“This means savers need to move if they haven’t yet locked in a fixed rate deal – anyone who has been waiting for rates to improve should start shopping around now. While lots of people have shifted their money into fixed-rate accounts to benefit from higher interest rates, there is still a huge £253 billion in accounts not paying any interest, according to Bank of England data. This shows that there are still a large number of savers who have not shifted their money to benefit from higher rates.
“If you want to get a decent return on your savings you need to shop around and move your money to the best accounts on offer. You won’t get a good savings rate by leaving your money in an old account or in your current account.”
Mortgages:
“Some mortgage companies go out ahead of the news and have already announced rate cuts. As we move closer to the time when the Bank starts cutting rates we’ll see mortgage rates continue to drop. This is good news for anyone who is coming up to their remortgage date soon, as they will pay slightly lower rates. On large levels of borrowing even small reductions in mortgage rates can result in meaningful sums saved on monthly payments.
“But despite falling rates, higher interest rates will cause pain for homeowners for years to come. Even if the Bank does start cutting rates in May next year, there is no expectation that they will be cut rapidly and by large amounts – which means they will take a long time to return to more reasonable levels. And homeowners are unlikely to ever see rates as low as they previously were. We know that around 1.6 million mortgages deals are due to end in 2024 and until we see meaningful cuts from the Bank of England those homeowners will still be paying hundreds, and in many cases thousands, more each year for their mortgage.
“Doom-laden headlines about higher mortgage rates may lead many homeowners to take an Ostrich-like approach and stick their head in the sand. But the worst option for someone whose mortgage deal is ending is to drop onto a Standard Variable Rate (SVR) mortgage. As Base Rate has shot up these have reached eye-watering levels and even a couple of months on this rate could equal financial calamity for some homeowners. Instead, homeowners should speak to their mortgage provider or broker to work out their options, assess how much higher their mortgage might be and plan for the increase in costs.”
