Today's vote
The Bank of England’s Monetary Policy Committee (MPC) voted 6-3 to leave interest rates at 5.25% in December, the third consecutive month it has left rates unchanged. Mortgage holders will be relieved at the decision, with those on variable rates having seen their costs rise sharply over the past couple of years. Those currently locked into low fixed rate deals will also be heaving a sigh of relief, although they must still be prepared for substantially higher mortgage rates when they come to remortgage.
Despite the base rate having remained on hold since August, recent weeks have seen mortgage rates start to ease. This is because inflation has slowed, prompting hopes that interest rates may have reached their peak. During periods of high inflation, interest rates typically rise to try to bring it down. Raising rates makes borrowing more expensive, which dampens consumer spending and leads to the prices of the goods and services we use rising at a slower rate.
Average rates come down
Average two-year fixed mortgage rates have dropped to below 6% for the first time since June, according to financial website Moneyfacts, with the typical rate now at 5.99%, down from a peak of 6.86% in late July. However, homeowners who are remortgaging, or buyers who are hoping to get onto the property ladder may be able to find lower rates, especially if they have a substantial deposit to put down or a decent chunk of equity in their homes if remortgaging.
For example, the best two-year fixed rate deals have now fallen below 5%, with five-year fixed rate deals available below 4.5%. Longer term fixed rate mortgages are slightly cheaper than shorter term fixed rates, due to expectations that interest rates will eventually fall. Even at this level however, those coming to the end of deals taken out a couple of year ago are likely to face a sharp payment shock, and so should make sure they prepare sooner rather than later.
Ultimately no-one knows what will happen to interest rates next, so securing your next mortgage a few months before you need it to begin can give you valuable peace of mind that you know how exactly much your payments will be. If interest rates subsequently fall before you your new mortgage is to due start, you’ll still have the option to move to a cheaper deal if one becomes available.
