BoE Keeping Base Rate at 4.75% | What it Means for Your Mortgage

On 19th December, the Bank of England voted to keep the base rate at 4.75% to keep inflation under control.

This means that the Bank of England dropped the base rate by a total of half a percentage point in 2024, but 4.75% is still the lowest bank rate we have had since June 2023.

For the past two years, the Bank of England has taken a hawkish stance on the base rate, but now that inflation is more aligned with the BoE's 2% target, there is still scope for further reductions.

In July, we elected a new government, and this change in administration could affect inflation levels. The base rate is the main way that the Bank of England controls inflation, so if inflation rises significantly, it's likely the bank rate will be increased again.

In recent months, the first products under 4% were seen, and it's likely that if the base rate stays below 5%, we'll see product rates follow in the New Year. 

It’s unlikely that interest rates will return to the uber-low levels we saw before 2022, but five-year fixes dropping consistently across the board is certainly a sign that there are more reductions to come.

In this article, our mortgage brokers weigh in on the discussion, and we analyse the bigger picture of the UK economy, inflation, and the mortgage market in this article.

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

(Credit: Bank of England)

It’s clear that inflation remains a central concern for the Bank of England. Maintaining a hawkish stance on the base rate continues the affordability strain prospective buyers have been experiencing, but it’s likely that house prices won’t jump significantly amid these concerns. 

Future Projections for the Housing Market 

Now that the bank rate is below 5%, it's likely that mortgage product rates will follow. It's possible that we won't see significant product rates drops initially, mainly due to the economic uncertainty presented by the recent Autumn Budget and the US Election. 

It's common for several legislation changes at once to cause uncertainty, which impacts lender confidence and borrowing costs, but this is usually short-lived. Once the dust settles, mortgage rates will likely see further reductions, particularly if the Bank of England base rate drops again. For homeowners and prospective buyers, this should ease monthly payments and mortgage affordability.

And on top of this, the housing market is showing signs of recovery. Increased buyer activity and improved market sentiment have contributed to modest house price increases, though affordability remains a key challenge. 

As winter approaches, expect continued steady growth in house prices, followed by the typical seasonal slowdown toward the end of the year.  

How Does Inflation Influence the Bank Rate? 

The country is recovering from high inflation rates that led to an elevated cost of living in 2022. The Bank of England controls inflation primarily by adjusting the bank rate, which determines the cost of borrowing across the nation. Higher interest rates mean that borrowing is more expensive, which limits economic activity.

Reduced economic activity will typically cause inflation to fall. However, it's also important that inflation doesn't fall too low. If this does happen, people may put off spending en masse in hopes that prices will drop. When spending stops completely, whole systems and companies can come to a grinding halt. 

The aim is to keep inflation low and stable. 

How Did Inflation Get So High?

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.   

Inflation is now below the BoE's target of 2%, which many feel is the primary reason the bank has lowered interest rates. Many experts expected inflation to jump up slightly in response to increased spending after the base rate was reduced to 5%, so it came as a surprise when inflation actually dropped below 2%. 

Now that the base rate has been dropped again, many experts are confident that we'll see a slight uptick in inflation and there is room for further base rate reductions in the future.

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 750 0305 or book an appointment.