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Mortgage interest rate expected to hold at 5.25%

The mortgage interest rate set by the Bank of England is expected to be held at 5.25% for another month in this week’s base rate review. The interest rate has been stuck at 5.25% for nearly 12 months since it last increase in August 2023.

Interest rates have been predicted to start to drop again as early as this summer as long as inflation figures continued to fall to the governments 2% target. Economists and the City are now suggesting that the Bank of England base rate could stay at the current rate until September or even October.

Inflation took a blow in May as the rate stuck at 2.3% which was a knock on effect of the unusually wet weather, causing poor retail and construction market performance. The impending General Election for the Conservatives was also hit with the unexpected pause in the economic recovery.

The Bank of England’s Monetary Policy Committee is due to meet for its next base rate review this Thursday 20th June. In last month’s meeting, only two out of the nine MPC members voted to reduce the rate by 0.25% to 5% which was promising but still not good enough.

We’re expecting to see a similar move in this week’s meeting and our predictions are very much for the rate to hold again. Inflation still needs to drop by another 0.3% for the rate to meet the government’s target of 2% and mortgage rates to drop.

As we covered in an article earlier this month, mortgage interest rate volatility with the major lenders is still an issue. Mortgage deal shelf lives is currently 15 days which is nearly half of what it was earlier in the year as rates were starting to stabilise.

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Advice from mortgage experts has changed over the past 6 months following the stabilisation of interest rates. It is less likely that mortgage rates will fall much, if at all, over the remaining several months of this year.

Mortgage rates are currently at an average of 4.93% for two year fixed rate deals and around 4.5% for five year deals. Interest rates have increased slightly this quarter in response to the Bank of England holding its base rate at 5.25%.

It is likely that mortgage interest rates will remain fairly stable for the next 6 to 12 months, or potentially longer. There could be a small reduction in interest rates towards the end of this year of 0.15% to 0.25% depending on what happens to the base rate.

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How do mortgages work?

A mortgage is a financial agreement between a mortgage borrower and a mortgage lender, commonly a Bank or a Building Society. When you take out a mortgage, you are borrowing money which you have agreed to pay back within a set number of years (your mortgage term).

The way that you repay your mortgage will depend on the type of mortgage that you choose:

  • Repayment mortgage: You will repay your outstanding mortgage balance plus any interest in regular instalments (usually monthly).
  • Interest-only mortgage: You will only repay the interest for your mortgage during your mortgage term, and you will repay the full loan amount at the end of your mortgage.
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What is the UK mortgage rate today?

Currently, the Bank of England Base Rate (BBR) is 5.25% and it has been since August 2023. Most mortgage lenders will base their Standard Variable Rates on the UK’s base rate of interest, and these rates will usually be around 2% to 4% higher than the Bank of England rate.

Will mortgage rates go down in 2024 in the UK?

Mortgage rates in the UK are based on the Bank of England Base Rate (BBR), as well as other factors like inflation and any major economic events. Inflation has dropped to 2.3% in April 2024, and the Bank of England Base Rate has held steady at 5.25%.

This is promising news which could indicate the potential for lenders to reduce mortgage rates towards the end of 2024. While mortgage rates could drop, it is unlikely that they would fall anywhere below 4% until at least 2025/26. This is due to economic predictions that the Bank of England Base rate will remain at 3.5% or higher until mid-2025.

Should I fix for 2 or 5 years?

When applying for a fixed rate mortgage, you have the option of ‘fixing’ your interest rate for a set number of years. Common options for fixed rate mortgage terms include 2 years, 3 years, 5 years, and 10 years. The ‘right’ number of years to fix your mortgage for will be based on your situation and the level of flexibility that you need from your mortgage.

2-year fixed rate mortgages can provide more flexibility, allowing you to easily switch to a new deal if a better rate becomes available within the next 2 years. 5-year fixed-rate mortgages can provide more financial security, especially if average interest rates in the UK increase dramatically.

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