Over the past two years, mortgage rates have been rising at a record pace, with some people seeing their monthly repayments increase by up to 40% when they remortgage.1

Naturally, homeowners are wondering what’s next: will rates climb even higher or will they come back down? As an investment manager, I can’t predict the future, but I can explain what the industry thinks, based on recent statements from the Bank of England.

What determines mortgage rates?

One of the biggest factors that determines your mortgage rate is the Bank Rate – the UK’s official rate of interest, set by the Bank of England. Mortgage rates usually change when the Bank Rate changes, or, sometimes, because it’s expected to change.

Why does the Bank Rate change?

The main reason that the Bank of England will change the Bank Rate is to try to control inflation, with a goal of keeping it at 2%. If inflation is below that, lowering the Bank Rate can stimulate economic growth. If inflation is above that (as it has been for a while now), raising the Bank Rate can curtail it.

What’s happening with the Bank Rate now?

On 1 February 2024, the Bank of England’s Monetary Policy Committee announced they will keep the Bank Rate as it is, at 5.25%, until they next meet. That’s the fourth time in a row that they’ve made that decision. This indicates that this rate is doing its job, but inflation isn’t where we need to it be yet.2

Inflation has already fallen from a peak of 11% in October 2022 to 4% in December 2023. The governor of the Bank of England has said, “We need to see more evidence that inflation will fall further, and stay low, before we can lower interest rates.”3 Still, it’s encouraging to hear that a cut could be on the way.

What does this mean for mortgages?

If you have a fixed-rate mortgage, it won’t change. Your repayments will remain the same until the end of your fixed-rate term (often two, three, or five years).

Around 1.6 million households have a fixed deal that’s expiring in 20244, so the current Bank Rate is most relevant to them, as well as first-time buyers who are hoping to get on the property ladder this year.

For these people, there’s good news, as we’re already seeing mortgage rates start to fall, even though the Bank Rate hasn’t changed. Since fixed mortgage rates last for several years, lenders can price in forecasted rate cuts before they happen.

What does this mean for savings and investments?

While a high Bank Rate makes mortgages more expensive, it also means you’ll earn more on your cash savings. Interest rates and Inflation are interlinked and could also affect different asset classes in complex ways.

If you have a significant amount of savings and investments and you’d like help to ensure that your wealth is protected from inflation and arranged to benefit from any future interest rate changes, it’s best to speak to an investment manager one-on-one. If you have questions about your specific circumstances, feel free to get in touch for a chat.

About the author

To contact or read more about Gabriela Gyurova, visit her biography here.


Important information

It is advisable to seek independent financial advice from a tax specialist before making financial decisions. Tax treatment depends on the individual circumstances of each client and may be subject to change in future. All statements concerning tax treatment are based upon our understanding of current tax law and HMRC practice and can be subject to change.

The information contained in this article does not constitute a personal recommendation and the investment or investment services referred to may not be suitable for all investors. Any opinion or estimate expressed in this publication is Investec Wealth & Investment (UK)’s current opinion as of the date of this article and is subject to change without notice. The value of investments and any income from them is not guaranteed and may go down as well as up; you may get back less than the amount invested. Past performance is not an indication of future performance.

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