The steady growth in the Bank Rate appears to be over, which has left many of us with mortgage commitments to breathe a sigh of relief.
It had been at 5.25% since August 2023, after a steady rise from its record low of just 0.1% in late 2021 as the Bank attempted to battle double-digit level inflation.
Now inflation looks to be under control, at least for the time being, and it may be time, it seems, to take the brakes off the economy by easing back the bank base rate.
But even after a 0.25% cut, that base rate remains uncomfortably high, and even if mortgages have fallen back a little, they remain much higher than many of us would have budgeted for a few years ago.
The good news for those waiting for more significant cuts to Britainโs Bank Rate is that we may be seeing some more reductions by the end of the year. The Bank of England meets eight times a year to decide whether it will raise, lower or decline to change the base interest rate. There are two more chances of a rate cut this year.
The Bank of Englandโs governor Andrew Bailey suggested in an interview in the guardian that the Bank could take a "more activist" approach to lowering borrowing costs. More cuts on the way would be very good news for the 2.2 million people with fixed mortgage deals ending over the next year-and-a-half, and anyone else with a home to pay for.
Partly as a result, the money markets have priced in that rates will be cut in November from 5% to 4.75%, and traders seem to be predicting a high chance of another quarter of a percentage point reduction in December.
What do these numbers mean?
When the Bank Rate is high, it has a direct effect on mortgage and savings rates. The average two-year fixed mortgage rate is currently 5.43%. It was 2.34% in December 2021 when the base rate was just 0.1%.
Falling interest rates are good news for borrowers and a lifeline for those who are struggling with a high mortgage. Hundreds of thousands of residential fixed-rate mortgage deals are due to end in 2024, according to trade body UK Finance, the majority of which it expects are five-year deals. Falling rates mean their inevitable remortgage will be considerably less painful.
It might not all be good news
Not everyone is looking for a cut in Bank of England base rate. Savers may not be so sanguine about a rate cut. The top one-year fixed savings rate is currently around 5%; in 2021, youโd have been lucky to earn 2% interest on your savings.
It looks as though saving rates have already started to fall back from their highs as providers look at the prospects for the next rate move.
How fast will interest rates fall?
At its last meeting on the 19th of September, the Bankโs Monetary Policy Committee (MPC) voted 8-1 in favour of holding rates where they are. Despite the governorโs positivity, it looks as though it was sending a clear message that it would not move too quickly to cut borrowing costs.
Its next meeting is on 7th November. Markets seem to believe a cut is likely, but there are no guarantees. Inflation may have fallen back, it is at 1.7% in September 2024. It may edge up again in the final quarter, driven by a 10% rise in energy bills. The bank might want to keep price rises in check.
On the other hand, flat economic growth in June and July, following a strong start to the year suggest that high borrowing costs are having a dampening effect on the economy. Prolonging this agony by keeping rate reduction on hold risks crimping the economy even further.
After the budget on the 30th of October, all eyes will be on the BoEโs next meeting in November to see if a second rate cut materialises then, or whether consumers will have to sweat it out for even longer.
What can you do?
If you are desperate for a rate cut to provide some relief on your mortgage worries, you need to call us at Continuum now.
We canโt tell you when rates are going to fall or by how much, but we can look to ensure you get the most appropriate deals across the entire lending market for you.
Bank of England to cut rates at every meeting until May, economists predict (telegraph.co.uk)
Best mortgage rates & deals October 2024 - Which?
Best savings rates in October 2024 | Up to 5.50% - Times Money Mentor (thetimes.com)
UK inflation rate: How quickly are prices rising? - BBC News
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to a particular mortgage or savings strategy and you should seek independent financial advice before embarking on any course of action.
The Financial Conduct Authority does not regulate deposit accounts.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.
