Interest rates held at 4.25%: how it’ll potentially impact your finances 

The BoE has kept interest rates at 4.25% on Thursday, 19 June.  

Six of the BoE's Monetary Policy Committee (MPC) voted to hold interest rates at 4.25% while three members voted to reduce the rate to 4%. 

A key reason for the decision is strong inflation (3.4% in May), partly fuelled by higher utility bills amid a weakening UK labour market and wage growth, as well as rising unemployment. 

There are concerns that US president Donald Trump’s trade war is causing the UK economy to slow down due to increased financial uncertainty.  

Markets are currently expecting two further base rate reductions in 2025, although these forecasts are subject to change due to various factors, including inflation and swap rates.  

How will mortgage rates be affected?   

There should be no change for variable-rate mortgage holders as their interest rate tends to rise and fall in response to changes in the base rate.   

The average five-year fixed-rate mortgage rate is currently 3.88%, according to Rightmove.   

Fixed mortgage rates have fluctuated over the last year, but many lenders have been reducing rates below 4% as the base rate has been gradually reduced. However, mortgage rates may continue to fluctuate.  

If you’re hoping to get on the property ladder, it’s worth stressing that prices are expected to continue rising this year. 

For those considering applying for a mortgage, there are multiple boxes you need to tick, including making sure you can afford it, having a good credit score, and clearing any outstanding debt.   

A qualified mortgage broker can boost your chances of a successful mortgage application.   

How will savings rates be affected?   

Savings rates have been slowly falling over the last year following several base rate reductions.  

As the base rate has remained unchanged, there is unlikely to be any immediate cut in savings rates, although this is not guaranteed. 

So, if you want a generous interest rate now, it’s important to open a fixed-rate account, as lenders can usually change rates for easy access accounts at any time.

At the time of writing, the top rate is around 4.5%. 

If you’re interested in higher rates of return (which aren’t guaranteed), it’s worth considering investing. However, it’s recommended that you invest for at least a few years, and you won’t have easy access to your cash. 

There’s also the chance you don’t get back as much as you invest if your investments fall in value and you’re forced to sell them at a loss. 

You can quickly match with a financial adviser via Unbiased, who can help you with an investment strategy or review your portfolio and advise on how to reduce your tax bill legally.   

What about annuities?   

Annuities provide peace of mind, offering a fixed income for your retirement or a fixed period, with rates recently reaching a decade high.  

Changes in the base rate also may affect annuity rates. While this hold decision may postpone any decreases in annuity rates, they’re unlikely to fall as fast or reach previous lows. 

If you’re planning to retire soon, it may be worth considering shopping around for an annuity while rates are generous. 

Unbiased can match you with a qualified financial adviser who can help you find the best annuity for your specific circumstances.