The Bank of England’s decision to hold the base rate at 3.75% offers stability for borrowers, but challenges persist for those coming to the end of fixed-rate deals. John Fraser-Tucker, Head of Mortgages at Mojo Mortgages, shares his view on what the latest decision means for borrowers and brokers.
“Following the Bank of England’s decision to maintain the base rate at 3.75% today, the mortgage market maintains stability. It marks a continued pause in the rate-cutting cycle that brought the base rate down from its 5.25% peak. While UK inflation has dropped to 2.8%, the decision to hold reflects the Bank’s caution around lingering external economic factors, such as unpredictable global energy markets, which policymakers expect could nudge inflation back up toward 3.25% by the end of the year.”
If you’re wondering what this decision means for your housing plans, here is how the 3.75% hold will ripple through the UK mortgage market over the next few months, according to Mojo Mortgages experts:
Immediate relief for tracker and variable rate borrowers
For homeowners currently on a tracker mortgage, today’s decision brings immediate stability. Because tracker mortgages directly mirror the Bank of England base rate, your monthly repayments will remain exactly the same for the time being.
Standard Variable Rates (SVRs), the default rates lenders move you to when a fixed deal ends, are also staying flat. The average SVR across all lenders currently sits at 7.35%. While this hold means your SVR won’t go up, sitting on a rate over 7% remains heavily expensive compared to available fixed deals.
Fixed mortgage rates plateau, but choices are opening up
If you are looking for a new fixed-rate mortgage or need to remortgage soon, today’s hold tells us that sub-4% fixed deals will remain rare and mostly reserved for buyers with massive deposits.
Fixed mortgage rates are primarily driven by swap rates (the cost lenders pay to secure future funding). Because financial markets had already broadly anticipated this June hold, lenders have already priced this into their products.
The latest data from Uswitch and Mojo Mortgages shows that average 2-year fixed rates have smoothed out to 5.09%, while average 5-year fixed rates hover just next to them at 4.98%. Over the next few months, expect fixed rates to remain in this stable, mid-5% plateau rather than experiencing sharp drops.
Because rates are expected to stay in this territory for a while, a growing number of borrowers are choosing 2-year fixes to keep their options flexible for when the base rate eventually drops further down the line.
The remortgage shock continues for expiring fixed deals
Thousands of homeowners will still see their ultra-low fixed deals expire over the next few months. Borrowers who secured a 5-year fixed rate back in 2021 when the base rate was near zero will be transitioning into a market where borrowing costs are significantly higher.
Even though rates have improved since the peaks of recent years, jumping from a 1% or 2% rate onto a 5.43% fixed product will still result in a noticeable, stressful increase in monthly household expenses.
Summary: What should you do next?
“With interest rates expected to stay flat for the immediate future, trying to “time the market” by waiting for a massive rate drop could leave you exposed to expensive standard variable rates if your current deal ends, or missing out if rates unexpectedly go up.
Lenders generally allow you to secure a new mortgage deal up to six months before your current rate expires. Securing a rate early acts as a safety net: if mortgage rates rise, you have locked in today’s price; if rates happen to drop before your completion date, you can typically switch to the cheaper deal without penalty.”
