What interest rate decision means for mortgage holders

THE Bank of England’s Monetary Policy Committee recently announced that the UK’s interest rate has remained unchanged at 5.25 per cent.

This decision comes after 14 consecutive interest rate hikes, with this latest attempt being met with widespread approval from industry professionals and a welcome pause for breath for mortgage customers.

While the previous decision to consecutively raise rates was deemed as an effective tool for controlling inflation by the Bank of England, it’s continued to have a significant impact on the affordability of mortgage customers, particularly for those on tracker or variable rates. Keeping the interest rate at the same level was a result of inflation slowing down faster than expected.

So, is there light at the end of the tunnel? The decision to keep interest rates unchanged also provides a glimmer of hope amid the ongoing economic storm.

While the door has been left open for further increases should inflationary pressures increase, interest rates may also remain steady if inflation continues to drop.

Nevertheless, the effects of previous interest rate hikes continue to filter through the system, and despite the heat beginning to dissipate from inflation, this too continues to decline at a slower pace as I mentioned in my last article in August.

This latest decision may also signify that the UK has reached the peak of the interest rate rise cycle, although we may have a while to wait before we see if this is the case, as previous speculation hinted we may reach 5.75 per cent.

So, how have lenders reacted? The response from lenders has been immediate, with some already having reduced their rates accordingly, a decision that will undoubtedly be well-received by borrowers across the nation.

Competition in the mortgage market is expected to increase, with a rate war well under way as lenders battle for more of the market share.

This should provide another much-deserved boost to customers worried about their current deal coming to an end, as well as those considering whether to kickstart their homebuying journey. Increased competition to reduce rates should also translate into a broader range of mortgage products becoming available. Borrowers may also benefit from the shift towards a slower and steadier approach to rate adjustments, rather than the sudden and dramatic hikes we’ve been experiencing.

While many will continue to experience higher monthly repayments compared to their previous deal, this decision could mark the beginning of a more favourable economic climate, both for mortgage customers and the wider housing market. With this in mind, homeowners are encouraged to revisit their financial arrangements, especially if lenders are reducing rates.

Liaising with a mortgage broker and your lender can potentially secure more competitive rates than those initially obtained, and allow you to lock in a deal that may be more suited to your current financial circumstances.

While the outcome for current and future mortgage customers is certainly looking more optimistic, the importance of quality mortgage advice cannot be understated.