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Bank of England holds interest rates at 5.25%: what to expect with mortgage and savings rates

Updated 01 February 2024

3min read

Lisa-Marie Voneshen

The Bank of England (BoE) has held interest rates at 5.25% today, 1 February.

Over the last two years, the BoE has hiked the base rate 14 times to combat high inflation.

Initially, this appeared to be working as UK inflation started falling at the end of last year.

For example, in November, inflation fell more than expected, from 4.6% to 3.9%. However, it surprisingly crept up from 3.9% to 4% in December.

This is expected to be a slight setback as inflation is forecast to fall further and may even fall to the BoE’s 2% target by this spring.

We’ll now explore what this interest rate decision in the UK means for you, including mortgages and interest rates.

How will mortgage rates be affected?

Variable-rate mortgage holders should be relieved as a base rate rise usually leads to higher rates.

Falling inflation in late 2023 prompted mortgage lenders to reduce their fixed-rate mortgage rates as expectations for a base rate cut became more likely, but the latest small rise in inflation has complicated this.

While interest rates are still expected to fall, the BoE may act later than initially expected. This has prompted many mortgage providers to readjust, mostly by cutting rates.

Some fixed-rate mortgages have recently fallen below 4%, which is high compared to historic standards, so you'll likely still pay more when you remortgage.

While rates may continue to fall, it depends on many factors, such as inflation and swap rates.

“Due to expectations of cuts later in 2024, many mortgage lenders had already begun reducing their rates ahead of today's announcement,” said Myron Jobson, senior personal finance analyst at interactive investor.

“However, it remains to be seen whether there will be further cuts to mortgage rates in the coming days as a result of today's decision.”

If you’re looking to get on the property ladder, it’s now more expensive to buy your own home; however, house prices are expected to fall this year, according to Nationwide.

If you’re applying for a mortgage soon, make sure you can afford it and that you have a good credit score, as well as clear any outstanding debt.

A mortgage broker can boost your chances of a successful mortgage application. Click below to find a regulated broker via Unbiased. 

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How will savings rates be affected?

One of the few groups to benefit from higher interest rates is savers.

As savings rates recently peaked, they are now on a downward trajectory. Those who are already locked in their rates, can enjoy higher returns as rates fall.

While you can beat inflation (4%) with an easy access or fixed-rate account offering around 5.1%, those looking for higher rates may want to consider investing.

Are you considering a fixed-rate account? Open one now before savings rates fall further.

If you have long-term financial goals and don’t need immediate access to your cash, investing is an option. While your investments can rise and fall in value, you may be able to ride out volatility by investing for a few years.

You can quickly connect with a financial adviser via Unbiased, who can help you with an investment strategy or review your existing portfolio.

What about annuities?

Annuity rates hit a 14-year high in January, driven higher by several interest rate hikes over the last two years.

Annuities can offer a fixed income for the rest of your life in retirement or for a fixed period, so they can offer peace of mind.

However, as a base rate cut is in the cards from mid-2024, it’s worth finding an annuity product with the best rates now, as these may fall alongside interest rates. 

You can quickly connect with a financial adviser via Unbiased, who can help you find the best annuity for your circumstances.

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About the author
Lisa-Marie Voneshen is a Senior Content Writer at Unbiased. She is an award-winning journalist with nearly a decade of experience writing and editing content across various areas, including personal finance and investing.