Last week, the Bank of England’s Monetary Policy Committee (MPC) voted to keep the standard base interest rate at 5.25% for the sixth consecutive meeting. The sixteen-year high interest rate has made borrowing more expensive and becoming a homeowner more difficult. It has also made it more difficult for homeowners to afford their homes. Despite a possible rate cut or two this year, rates are still far from what could have been imagined only two years ago.

In May 2022, the MPC increased the rate from 0.75% to 1.0%. Lender rates reflected the then base rate, and borrowing was much cheaper than now. Not only were homeowners able to secure low interest rate remortgages, but home buyers were able to secure their own low-rate deals. Those that obtained low two-year fixed rate mortgage deals will be coming to the end of their mortgage terms this year, or already have done so. This might cause affordability issues as the repayment amounts could increase substantially once their term ends.

For homeowners at the end of a term, they could remortgage, or their lender will transition them to their standard variable rate (SVR) and the better and lower rate would be found with a remortgage. Avoiding a SVR is the better strategy when rates are high and not declining steeply. It is especially the better choice when rates of SVRs are expensive, and a more affordable rate could be found with a remortgage.

Keeping an eye on the forecast for lower rates is the focus for many homeowners. The possibility for cheaper rates is a greater possibility this year than last when rates were climbing. The hope for lower cost rates is growing, but homeowners and home buyers will not find a return to the rates of 2022.

The forecasts for rate cuts will be small according to experts. If the two hoped for rate cuts do occur this year, and they are at the rate of 0.25%, the rate will lower to 4.75% and lender rates are already slightly above that level due to the competitive environment that developed early in the year.

Optimism for an early spring cut to the base rate pushed lenders to offer their cuts and some offers fell below the base rate. It didn’t last because inflation fell to impress and stood stuck for several months. It has recently been on a decline, but at 3.2% is still above the target rate set by the Bank of 2.0%.

Lenders began to pull their best rates as forecasts postponed a rate cut to early summer and then later summer. Yet, there are still impressive offers considering the Bank’s base rate of 5.25% hasn’t budged. 

The possibility for a rate cut could be in August, with a slight opportunity to see one in June. The possibility for June is due to the calendar. The MPC meeting for May was last week, held days before the next inflation report which will be 22 May. The following inflation report will be 19 June, meaning there will be two inflation reports between the May MPC meeting and the June MPC meeting to be held 20 June. 

The MPC is expecting a significant decline in the rate reported this month, and more of a decline next month. If those occur, then the MPC may feel confident enough to offer the first rate cut of 2024. 

Lenders may or may not respond favorably to the cut. They already have responded to the economic forecasts. They might be as competitive as before to gain the attention of borrowers or they may be more cautious and await even more of a positive response of inflation in future data releases before cutting their current offers. 

The result of the March MPC meeting was a change from the last two years with no member voting for a rate hike, but rather one voting for a rate cut of 0.25%. The next meeting of the committee held last week resulted in two of the nine members voting for a cut of the same 0.25% amount.

The governor of the Bank, Andrew Bailey, voiced optimism for borrowers as he stated there could be a rate cut in June. He remarked, “Before our next meeting in June, we will have two full sets of data – for inflation, activity and the labour market – that will help us in making that judgment afresh. But, let me be clear, a change in bank rate in June is neither ruled out nor a fait accompli.”