Good news for homeowners! The Bank of England has cut interest rates from 5.25% to 5% – the first reduction in over four years.
This long-awaited decision follows seven consecutive months where the Bank chose to keep rates on hold and puts an end to over a year of consecutive rate hikes that started back in December 2021.
Why did the Bank of England cut interest rates?
The Bank of England has been raising interest rates to try to control soaring inflation, which reached a painful 11.1% in October 2022.
Higher interest rates make borrowing more expensive and encourage saving, which helps to cool down the economy and bring down the cost of living. It seems to be working! Inflation has now fallen to 2% – the Bank of England’s target – for two months in a row.
What does this mean for mortgage holders?
This rate cut is a positive sign for those with mortgages, particularly those on tracker or variable rates who should see their monthly payments drop slightly.
However, most people are on fixed-rate mortgages and won’t see an immediate change. The good news is that fixed rates are already falling. The average five-year fix is now 5.39%, down from 6.35% a year ago, and some deals are even cheaper!
Experts believe rates will continue to fall gradually over the next year.
What about if I need a new mortgage soon?
If your fixed-rate deal is ending soon, don’t panic about today’s news. Mortgage lenders predict future interest rate moves and factor them into their fixed-rate deals.
That means today’s cut was already factored into the low rates on offer now, and you can still bag a good deal. The cheapest five-year fixes are currently around 3.99%.
Will mortgage rates go back to what they were before?
While rates are expected to continue to fall, most experts don’t think they’ll return to the rock-bottom levels we saw in 2021/22 anytime soon.
What happens next?
The Bank of England will continue to monitor the economy and inflation closely. If inflation stays under control, we could see further rate cuts in the coming months, which will be welcome news for homeowners and those looking to buy.