Mortgage rates are expected to fall further in the wake of the Bank of England’s decision to hold Britain’s base interest rate at 5.25%.
Given mortgage rates have declined in recent months on speculation that Britain’s peak interest rate may not be as high as once feared, analysts say the latest rate call by the Bank of England could tempt better deals from lenders.
“Of course, there are no guarantees that this is the end of it, but they [mortgage holders] can at least take a breath,” Hargreaves Lansdown analyst Sarah Coles said.
“If lenders are going to the market for new fixed rates right now, the fact that the market’s rate expectations have fallen could mean lower mortgage rates.”
Having lifted the UK base interest rate to 5.25% through 14 consecutive hikes, the central bank decided to sit on its hands after Wednesday’s surprising news that inflation subsided in August.
Nationwide led the way just hours after the decision, announcing from Friday it would reduce rates by up to 0.31%.
“Even before the announcement, the markets reacted,” Coles added, with the likes of TSB Banking Group (LSE:TSB), NatWest Group PLC (LSE:NWG) and HSBC Holdings PLC (LSE:HSBA)’s First Direct announcing mortgage rate cuts this week.
From Friday, TSB will reduce rates by up to 25 basis points, leaving the bank’s cheapest deal offering interest of 5.09%.
NatWest Building Society cut residential rates on two and five-year fixed deals by as much as 0.21% from Thursday meanwhile, now offering 5.84% and 5.29% for each respectively.
Cheaper rates can be found at First Direct after reductions of up to 0.19% brought its five and two-year fixes to 5.08% and 5.70% respectively.
Hints from the Bank of England that rates could remain inflated for a while, however, make for dreary news for mortgage holders in the longer term, analysts said.
Given much of the market involves fixed mortgages, the full effects of higher rates seem yet to fully show, according to interactive investor’s Myron Jobson.
“It's important to keep an eye on the horizon [...] once that shelter expires, they’ll likely contend with higher rates when refinancing their mortgage,” he said.