This came after August’s rate reduction, down from 5.25%, and it was widely expected that the bank would maintain rates in September. The MPC voted by eight to one to hold, not least because inflation ticked up slightly to 2.2%.
What does the hold decision mean for mortgages?
The base rate has an effect on mortgage rates, so the decision to hold means no direct change for existing borrowers.
Variable rate mortgage borrowers will see their pay rate stay the same.
This includes tracker rate borrowers, as well as discounted variable rate and standard variable rate (SVR) borrowers.
Those currently on a fixed rate mortgage will see no change for the duration of their current deal, no matter what happens to wider interest rates.
For new borrowers, the decision to hold could mean that new mortgage rates hold steady, although in fact we’ve seen the trend of falling rates continue this week, with Nationwide cutting rates by up to 0.31 percentage points, for example.
This is on the back of widespread falls in the cost of mortgages since the rate cut last month.
Rachel Springall, finance expert at Moneyfactscompare.co.uk, explained: “The mortgage market has seen a bustle of activity over the last month, with the Bank of England base rate cut, and a more favourable swap rate market, creating a positive influence on fixed rate pricing.
“There have been several lenders passing on the 0.25% base rate cut to customers, leading to the standard variable rate (SVR) falling below 8% for the first time since August 2023.”
While mortgage borrowers may have hoped for another reduction, they have still benefitted from falling rates since the start of August, noted Moneyfacts.
The average two- and five-year fixed mortgage rates dropped to 5.56% and 5.2% respectively in September, compared to 5.77% and 5.38% one month earlier.
Nick Leeming, chair of Jackson-Stops, added: “While further cuts to the base rate would help to remove a number of obstacles for buyers and sellers, what the property market needs above all is certainty. A sensitive, gradual, adjustment to the base rate can offer that.”
What about remortgagors?
Rates may have fallen, but they are still much more expensive than they were two years ago, when the average two-year fixed rate was 4.24%.
This means that those coming to the end of a fixed rate could still face a sharp rise in their monthly repayments when they switch to a new deal, and doing nothing could cost them even more, with the average SVR at 7.99%.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said: “Keeping the headline interest rate on hold will be a blow for mortgaged homeowners and first-time buyers hoping for further respite from high borrowing costs.
“While easing inflation and the rate cut last month have provided some relief from the sky-high borrowing costs of the past couple of years, it won’t have solved all the affordability challenges existing homeowners and prospective buyers are still facing.”
