Bank of England Holding Base Rate at 5.25%: What it Means for Your Mortgage

22-March-2024
22-March-2024 15:26
in Mortgage
by Sam Hodgson
Bank of England Base Rate Staying at 5.25%

Financial experts generally agree on one thing: that the base rate will drop in 2024. However, property owners want to know when they will see a drop in interest rates.  

The Monetary Policy Committee is responsible for setting the bank rate. In their most recent meeting on March 21st, they announced that despite inflation falling solidly in the early months of 2024, it is still too early to reduce the base rate. 

Our experts say that we’re on the cusp of getting inflation below 2% and that inflation is likely to fall below the 2% mark by May this year. The Bank of England has been working towards the 2% target with increasingly high interest rates since 16 December 2021, so a drop would be over two years in the making. 

Since 2022, many property owners have been pinching pennies amid high interest rates, inflation, and energy costs. If you’re a landlord or homeowner looking for a reprieve from the consistently high interest rates we have seen for the past year and a half, this may be welcome news. 

Bailey claims that keeping the Bank Rate at 5.25% will help reduce inflation further in the coming months. This suggests that if the Bank of England reaches its goal of getting inflation below 2%, the Bank Rate will also begin to drop. 

See similar: Are Mortgage Rates Going Down?

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What Do the Experts Say?

George Abouzolof

George Abouzolof

Senior Finance Broker CeMAP

The decision to keep the base rate at 5.25% doesn’t come as a surprise. Inflation is still in excess of 3% and swap rates have ticked upwards in recent weeks, although we are still expecting the base rate to fall towards the end of the year. Mortgage rates have also been squeezed upwards in light of the swap rates.

One factor that may have prevented inflation from dropping quickly is that the UK economy exited the recent recession and grew by 0.6% between January and March.

Read blog: Should You Get a Tracker or Fixed Rate Mortgage in 2024? & Is Now the Time to Switch?

The graph below shows how the bank rate has increased since mid-2021.

Bank of England base rate staying at 5.25%

(Credit: Bank of England)

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What Does the Data Say?

Regarding bank rates, the mood of the general public is mixed. Our recent Mortgage Pulse Report 2024 shows a high level of confidence when it comes to mortgage rates this year. Just 15% of participants believe interest rates will rise over the next 12 months, and 85% expect a decrease or rates to stay the same. 

Mortgage Interest Rates Survey

In addition, over 40% of homeowners earning under £50,000 annually are concerned about keeping up with their mortgage payments in 2024. 

Mortgage Repayments Survey Low Income

The static market we saw in 2023 could be a thing of the past. After over a year of sky-high interest rates, consumers may feel braver about committing to a purchase now that the market indicates a potential drop in rates. 

Related: What is a Professional Mortgage and Can You Get One? & Spring Budget 2024: 5 Key Property Market Takeaways

How Does Inflation Influence the Bank Rate? 

The Monetary Policy Committee was split 8-1, with the majority in favour of keeping the bank rate the same and one member, Swati Dhingra, backing a reduction to 5% for the second time in a row.  

This is a big change from the results of the meeting on 1st February when the committee saw its first three-way divide in 16 years. In February, two members voted to increase the bank rate to 5.5%.  

Since that meeting, figures from the Office for National Statistics revealed that inflation dropped to 3.4% in February. In the March Monetary Policy Committee meeting, there was no favour for an increase in the bank rate, indicating that the Bank of England is now leaning towards a decrease. 

In economic terms, the Bank of England has taken a ‘hawkish’ approach to the bank rate. A hawkish monetary policy typically focuses on raising the rate with care to reduce inflation. This contrasts with a ‘dovish’ policy, which typically values low unemployment and quantitative easing of inflation.  

Bank of England Chancellor Andrew Bailey has said, “We're not yet at the point where we can cut interest rates, but things are moving in the right direction." This suggests that once inflation reaches the Bank of England’s 2% goal, the BoE is likely to change its tack and take a more dovish approach to the base rate.  

The base rate has been static since 3rd August 2023, suggesting that the BoE is still prioritising getting inflation to 2%, but its concerns about the inflation rate may be lessening.  

It’s also worth noting that inflation can have spikes in response to global and national events. Inflation originally increased in response to three large economic shocks in the past four years.  

Firstly, COVID-19 caused a shortage in products and services in 2020, and this demand led to increased prices. Then, Russia’s invasion of Ukraine impacted energy and food prices. Finally, it became evident in 2022 that thousands of people had left the workforce following the pandemic. This pushed up hiring costs, and many businesses subsequently raised their prices.  

These three major hits to the economy contributed to the current cost-of-living crisis. Because major events have a relationship with inflation, the long-term view on inflation is never set in stone, but experts can make an educated guess with the data they do have.   

We’re no longer seeing the worryingly high 11% inflation rate that occurred in October 2022, but it does seem the Bank of England is sticking with its approach until it reaches its target. Thankfully for property owners and Britons struggling amid the cost-of-living crisis, 2% inflation looks imminent in 2024.  

How Can You Find an Affordable Mortgage in 2024?

Despite the optimism about declining mortgage rates, deciding on the best option can be daunting and confusing.

We can help you compare mortgage products and their costs to find the best deal for your specific situation from a wide range of lenders nationwide.

Expert mortgage advisors have a finger on the pulse of the latest mortgage market news. Whether you're a first-time buyer, looking to refinance, or investing in a buy-to-let, we can help you understand your mortgage options so you feel confident you're making the right choice.

To see what we can do for you, call us at 0203 900 4322 or book an appointment below.

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