14 December 2023

What does the latest Bank of England base rate decision mean for households?

14 December 2023

Interest rates have held steady following the Bank of England’s latest base rate decision. Here is a look at what it means for households:

– What has happened?

The base rate has been held for the third time in a row, at 5.25%, following 14 consecutive hikes.

– What could this mean for mortgage borrowers?

With rates at a standstill, homeowners on tracker mortgages, who have already seen a series of increases to their payments, will not see their costs jump.

But the mortgage pain for households does not stop. Many mortgage holders who are coming off fixed-rate deals in the coming months are likely to be refinancing on significantly higher rates than they have been used to.

According to Moneyfactscompare.co.uk, since the start of December 2021, the average two-year fixed rate has risen from 2.34% to 6.04% by the start of this month, and the average five-year fixed-rate mortgage on the market has jumped from 2.64% to 5.65%.

– What about savers?

Since the start of December 2021, the average easy access savings rate has jumped from 0.20% to 3.18% by the start of this month and the average easy access Isa rate has risen from 0.26% to 3.31%, according to Moneyfacts’ data.

With rates holding steady, and cuts expected at some point further out on the horizon, savers are being urged to grab the top deals while they can.

Alice Haine, personal finance analyst at Bestinvest said: “The ‘winners’ for now in this still high interest rate environment are savers.”

She added: “Now is the time to act, however, if savers don’t want to miss out on the top rates before they disappear. While fixed-rate deals of 6%-plus became a feature in the summer months, these offers have already disappeared and with rate cuts expected next year, savings rates are likely to ease further from here.

“Savers with money sitting idle in accounts offering dismal returns should nab a top fixed-rate deal while they still can.”

– What could the latest decision mean for the wider housing market?

Estate agents are hoping that it will bring a confidence boost to a market which has been sluggish in recent months.

Frances McDonald, director of research at estate agent Savills, said: “The Bank of England’s decision to hold Bank base rate at 5.25% is likely to bring more confidence to the UK housing market.

“Over the past year, higher mortgage rates have led to price sensitivity and lower levels of transactions, and a market which had been dominated by cash and equity rich buyers.”

– Could we start seeing rate cuts soon?

The Bank of England’s Monetary Policy Committee (MPC) appears cautious over the potential for cuts soon, saying it continues to judge that monetary policy is likely to need to be restrictive for an extended period of time.

Its latest report also said that further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures.

Ms McDonald said: “Although it looks as if interest rates have peaked, the first cut still looks some way off. That means heightened affordability pressures are likely to result in further (but more modest) house price falls of 3% in the first half of 2024.

“Savills expects the market to bottom out mid-way through next year as mortgage rates start to ease more significantly in anticipation of a base rate cut later in the year.”

– Could the financial squeeze ease for households in 2024?

Haine said: “The cost-of-living and cost-of-borrowing crises forced households to drastically rein in their expenditure over the past 24 months – but with rate cut chatter growing louder by the day, there are hopes of better times ahead.

“Consumers should remain cautious though as they edge into the new year with the stuttering economy, softening jobs market and risk of recession red flags to be wary of.

“For now, household expenditure should remain conservative, with a priority placed on clearing expensive debts and building a robust emergency fund to weather any surprise financial storms in 2024.”

The best videos delivered daily

Watch the stories that matter, right from your inbox