Borrowers’ relief hopes dealt a blow

Homeowners hoping for some mortgage relief have been dealt a blow by the base rate being left on hold.

The Bank of England decided to keep the rate at 5.25% yesterday, although governor Andrew Bailey said he is “optimistic”.

Around 1.6 million fixedrate mortgages are due to end or have already ended and homeowners will be remortgaging on to significantly higher rates.

Some commentators also suggested the hold on the base rate may affect sentiment in the housing market.

Figures released by financial information website Moneyfacts showed the average two and five-year fixed-rate mortgages on the market are 5.93% and 5.51% respectively, while a week ago the average two-year fix was 5.91% and the typical five-year fix 5.49%.

The Bank of England will be able to assess upcoming data releases, including inflation and jobs figures, before its next meeting in June.

Matt Smith, Rightmove’s mortgage expert, said: “We’d expect that average mortgage rates will begin to trickle down again soon.”

Laura Suter, director of personal finance at AJ Bell, said: “The real impact of this delay will be felt by homeowners, who will have to endure higher rates for longer.

“It means more people will come off their cheap mortgage deals and on to higher interest rates before the base rate is cut.

“It also means that those people who gambled on a tracker deal at the start of the year, in the hope of imminent rate cuts, will have to pay their mortgage on higher rates for longer.”

Figures released by UK Finance yesterday showed 870 homeowner-mortgaged properties were repossessed in the first quarter of 2024, 36% up on the previous quarter and 9% up year-on-year.

UK Finance said repossession numbers remain very low compared with longer-term norms but added households remain under pressure from the cost of living and higher interest rates.

Kevin Shaw, national sales managing director at Leaders Romans Group, said: “A reduction in rates would have supported economic growth and hesitancy to lower them might hinder the recovery in the housing market.”

Myron Jobson, senior personal finance analyst at Interactive Investor, said: “For now, Britons are still being buffeted by a double whammy of high inflation and high interest rates.

“With interest rates likely to remain high for some time, debt repayments will be a priority for many.

“The stark reality is even if the Bank of England cuts interest rates in the summer, high interest rates aren’t going to disappear overnight.”

He suggested savers should scour for the best deals before they disappear.

Mr Jobson said: “Savings rates have seen little change in recent weeks, but the overall trend has been downwards since the start of the year in anticipation of the Bank of England lowering rates.

“Those who can afford to put money away for at least five years or more should consider investing for the potential of long-term inflation-beating returns.”

Mark Hicks, head of active savings at Hargreaves Lansdown, said: “For savers, there are still multiple rates across easyaccess savings and Isas, and fixed-term products, which pay over 5%.

“However, banks have been slowly reducing the rates on offer in easy-access space as they start to prepare for a base rate cut later this year.”

BRIGHT SIDE: Bank of England governor Andrew Bailey says he is ‘optimistic’ things are moving in the right direction.