The Bank of England (BoE) has recently announced that the base interest rate will remain at 4%. While this may seem like a pause in economic news, it carries significant implications for anyone with a mortgage or looking to get one. Whether you're a first-time buyer, remortgaging, or on a variable rate, the base rate plays a crucial role in shaping what you pay monthly for your home.
What Is the Base Rate?
The base rate is the interest rate the Bank of England charges commercial banks for borrowing money. It influences the interest rates that lenders offer to consumers on products like savings accounts, loans, and mortgages. When the base rate rises, borrowing becomes more expensive; when it falls, it usually becomes cheaper.
Impact on Variable-Rate Mortgages
If you’re on a tracker or standard variable rate (SVR) mortgage, the base rate staying at 4% means your payments are unlikely to change—at least for now. Tracker mortgages follow the base rate directly, while SVR mortgages often rise and fall in response to it. With no increase, you avoid higher monthly repayments, but it also means no immediate reduction either.
Many borrowers on variable rates had been concerned about another hike, so this pause brings some short-term relief and predictability. However, it’s still a relatively high rate compared to the historically low base rates we saw between 2009 and 2021.
Fixed-Rate Mortgages
For those on fixed-rate mortgages, the base rate doesn’t affect monthly payments until your deal expires. However, it still influences the market as a whole. Mortgage lenders price their fixed-rate deals based on future expectations of interest rates. With the BoE holding steady at 4%, lenders may become more confident in offering slightly more competitive fixed rates—especially if they believe we’ve reached the peak of the rate cycle.
That said, fixed rates are still higher than many borrowers have been used to over the last decade, and locking in a new deal now could mean higher monthly payments compared to those coming off ultra-low pandemic-era rates.
What It Means for New Buyers
For first-time buyers, affordability remains a key issue. Even with the rate holding steady, borrowing costs are significantly higher than just a few years ago. Lenders still assess affordability using stress tests that account for potential rate increases, which can make it harder to borrow large amounts.
However, the lack of a rate hike also helps maintain a degree of stability in the housing market. If the base rate had increased, mortgage deals could have become more expensive almost immediately.
In Summary
While the base rate staying at 4% doesn’t mean lower mortgage payments, it does offer a break from further increases and gives borrowers and lenders some breathing room. Whether you’re reviewing your current deal or entering the market for the first time, speaking with a mortgage advisor can help you understand your options and make the right financial decision in this changing environment.