The Bank of England has today announced its latest interest rate decision, freezing the rate at 3.75% and confirming what economic experts have been predicting in recent weeks.
Although the bank’s base rate has been cut six times over the last eighteen months, fears of an increase in inflation due to the crisis in the Middle East have scuppered plans to continue the reduction in interest rates in the March announcement.
Our property expert Shawn Wood takes a closer look at what this could mean for you as both a homeowner or a first-time buyer.
What are interest rates?
When you save or borrow money, you will either be paid or charged interest by the bank. If you are saving money, you will be paid interest on your savings. If you are borrowing money, for example when you take out a mortgage to buy a house, you will have to pay interest on your repayments. The interest is expressed as a percentage of the total amount saved or borrowed, which is known as the interest rate.
It is the job of the Bank of England to set a base interest rate for the UK. They review and set this rate eight times a year, in order to control inflation.
How will a change in interest rates affect my mortgage?
Keeping up to date with changes in interest rates is especially important if you are repaying a mortgage. The announcement that today’s interest rates will be maintained at 3.75% will impact everyone differently depending on what kind of mortgage you signed up for.
Fixed-rate mortgages
If you sign up for a fixed-rate mortgage, you agree with the mortgage lender to repay at a set rate of interest for a fixed period. Often, these are offered by lenders as deals that last between two and five years.
The decision by the Bank of England to freeze the base rate at 3.75% will have little effect on you if your current deal is fixed, as you won’t see any immediate changes to your monthly repayments.
Tracker/Variable Mortgages
A freeze in interest rates can generally be considered as good news for those on variable or tracker mortgages to as it means there will not be a sudden hike in monthly repayments for homeowners. However, no change also translates to no decrease, which those on tracker mortgages would be hopeful for considering the Bank of England has continued to cut rates six times since August 2024.
Remortgaging
The freeze in interest rates could mean a substantial rise in monthly repayments for those coming off longer-term, fixed-rate mortgages that were set in 2020 and 2021.
However, this is all dependant on what type of mortgage deal you are changing to, which is why it is important to speak to the experts if you are about to remortgage and seek out a deal that will work best for you.
Shawn says: “If you have six months left on your current deal, you should act quickly and sort your remortgaging plans. Speak with your broker as soon as you can to lock in the best possible rate.”
What effect do interest rates have on first-time buyers?
If you are in the exciting position of looking to buy your first home, the current freeze on the Bank of England’s base rate will work in your favour as it offers a more stable outlook on the cost of borrowing. This continued certainty may mean more competitive mortgage deals and improved affordability for first-time buyers, but bear in mind that demand for property can often rise during these periods of certainty, so it’s important to get in touch with a legal expert as early in your buying journey as possible.