The Bank of England has decided to keep interest rates on hold at 5.25% for the seventh time in a row, dashing the hopes of homeowners looking for a break from pricey mortgage payments.

This news comes despite the fact that inflation has finally fallen back to the Bank’s target of 2%. So, what does this mean for your mortgage?

Why are rates on hold?

The Bank of England has been steadily increasing interest rates since December 2021 in a bid to curb soaring inflation, which peaked at a painful 11.1% in October 2022.

Higher interest rates make borrowing more expensive, encouraging people to tighten their belts and spend less. This, in turn, should help to bring those sky-high prices back down.

And it seems to be working! Inflation has now settled back at the target 2% rate.

Will rates go down soon?

While this latest rate freeze might be a blow, experts predict that the Bank of England could start cutting rates later this year.

Most are betting on one or two cuts in 2024, possibly as early as August or September. This could see the base rate drop to 4.75% by the end of the year and even down to around 3.75% by the end of 2026.

Some economists are even more optimistic, with Capital Economics predicting a drop to 3% by the close of 2025.

However, don’t celebrate just yet. Some experts believe the Bank should have already started cutting rates, arguing that the current high rates are putting too much pressure on ordinary households.

What does this mean for my mortgage?

Fixed-rate mortgages: If you’re on a fixed-rate mortgage, this latest announcement won’t have an immediate impact on your monthly payments.

However, keep an eye on what’s happening with interest rates in general. Banks base their fixed-rate deals on their predictions for future base rate moves.

Variable-rate mortgages: If you’re on a tracker, discount, or standard variable rate (SVR) mortgage, you might be feeling disappointed that rates aren’t coming down yet.

These types of mortgages directly track the Bank of England base rate, so your monthly payments could go up or down in the coming months.

Coming to the end of a fixed-rate deal? Brace yourself. Mortgage rates are still significantly higher than many borrowers have been used to in recent years.

The average two-year fix is currently sitting at 5.97%, while a five-year fix will set you back around 5.53%.

If you’re coming to the end of a cheaper deal, remortgaging could mean a hefty jump in your monthly payments. It’s crucial to speak to a mortgage broker to explore your options and secure the best possible deal.

The bottom line: While this latest rate freeze is disappointing news for borrowers, there is light at the end of the tunnel. Experts predict that rate cuts are on the horizon, potentially bringing some much-needed relief to mortgage holders later this year.