The Bank of England held the base rate at 5.25% again in March, the fifth consecutive month that rates have remained unchanged.
However, even though it remains unchanged, the base rate is still at its highest level since the financial crisis of 2008.
The past couple of years have seen rates rise 14 times in a bid to curb rampant inflation. These seem to have had the intended effect, with inflation dropping from 3.4% to 3.2% in the 12 months to March and creeping closer to the government’s 2% target.
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, the wealth manager, said: “The UK’s headline inflation rate eased to 3.2% in the 12 months to March delivering further respite to households whose finances have been battered by high borrowing and living costs for more than two years. Core CPI inflation, which strips out more volatile items such as food, energy and tobacco, also eased to 4.2% in March, raising hopes that the Bank of England may make a move to cut interest rates sooner rather than later.
“Naturally, most households would want an interest rate cut to happen as soon as possible to reduce the impact of high borrowing costs, but they may have to wait longer than hoped with economists divided on when a rate reduction will happen. While some are tipping a summer rate cut as early as June, others expect a change in August or even in the autumn.
“Easing inflation does not automatically guarantee an imminent interest rate cut. While the BoE acknowledges that interest rate cuts are the ‘direction of travel’, they say they require consistent evidence that inflationary pressures are in retreat before they can make a move. This means borrowing costs could remain higher for longer – not something households starting to get a grip on their finances after the protracted financial squeeze of the past couple of years may want to hear.
“For now, consumers should focus on the factors that may allow the central bank to cut interest rates sooner rather than later. These include easing inflation as well as a softening labour market with unemployment on the rise, employment in decline and vacancies continuing to fall.”
Here, we explain what rates being held at 5.25% might mean for you, and whether it’s likely to impact your finances.
Your savings
Savings rates remain competitive, and hopefully the decision to leave the base rate unchanged won’t have a significant impact on them, although we have already started to see some returns nudge downwards.
Kevin Brown, savings specialist at Scottish Friendly, said: “While base rate remains at 5.25% cash savers will still be able to access savings accounts with attractive rates. But that isn’t going to last forever. For those considering the best home for their money over the medium to long term now might be the time when they start to consider investment options as the high best buy cash rates on offer will start to drift downwards.”
You can find details of current best fixed rate accounts, updated weekly, in our article Fixed rate savings bonds explained.
Those with longer-term savings goals – more than five years and ideally at least 10 – and who are comfortable accepting a level of risk, may want to consider investing some of their money in the hope of generating inflation-beating returns. However, remember that there’s a chance you could get back less than you put in, so investing isn’t for the faint-hearted.
Find out more about whether investing some of your savings could be right for you in our guide Investing – the basics.
What you can do
Even though interest rates haven’t changed this month, it’s essential to make sure your savings are working as hard as they possibly can for you.
Check savings websites such as SavingsChampion, or price comparison sites such as Moneyfactscompare.co.uk, uSwitch or GoCompare to see if you can find a higher interest paying account to move to, although it might be worth holding fire for a week or two to see which providers raise rates. Learn which providers are paying the highest returns on easy access accounts in our guide to the Best instant access savings accounts. If you’re looking for a cash ISA, you can find the best rates in our article Best cash ISA rates – which cash ISAs pay the most interest?
If you have money in a fixed rate savings account and you think you could do better elsewhere, check what the penalties are for closing your account. In some cases it may just be a few months’ interest and you may be better off moving your money to an account paying higher returns. As mentioned you can find the current best fixed rate savings rates in our guide Fixed rate savings bonds explained.
Your mortgage
The Bank’s decision to hold interest rates at 5.25% for a fifth time is likely to come as a disappointment to homeowners, many of whom are facing a sharp jump in their monthly payments when their fixed rate deals come to an end..
However, Paresh Raja, chief executive of Market Financial Solutions, said: “Yesterday’s inflation data didn’t fall enough to move the needle for the Bank of England, but the property market is already benefiting from the stability that a static base rate provides. Mortgage rates have fallen, buyer demand has risen, and we’ve seen a return to growth where house prices are concerned, all contributing to a solid start to the year for the property market.
“Clearly, buyers are adapting to the higher rate environment, and lenders are being bolder in the rates and products they are offering. This is important – even when the Bank does cut the base rate, we have to be realistic in accepting that rates will not come down as quickly as they went up, so the market has to adjust to a different interest rate environment.
“The early signs are that this is happening, and while inflationary pressures and election uncertainty remain as bumps in the road ahead, there is undoubtedly far greater confidence and optimism permeating through the property market.”
You can find out more about why mortgage rates move even when the base rates has stayed the same in our guide What are swap rates and how do they affect my mortgage?
According to research by Moneyfactscompare.co.uk, fixed mortgage rates have jumped in the past few years. In November 2021, the average interest rate for a two-year fixed mortgage stood at 2.29%, but it is now 5.76%. Average five year fixed rates are lower at 5.34%.
One of the best two-year remortgage offerings at the time of writing is 4.57% from MPowered Mortgages (60% loan to value), followed by a 4.62% from the same provider (60% loan to value) and a 4.68% fix from First Direct (60% loan to value). The best five-year fix is from Allied Irish Bank at 4.09% (60% LTV), with 4.28% from NatWest (60% LTV) and 4.29% from Allied Irish Bank (75% LTV).
What you can do
If you’re on a fixed rate mortgage, you don’t need to do anything – for now. If you’re on a standard variable rate, you may want to remortgage to a cheaper deal if you can find one. You may also want to start looking round for a new deal now if your current mortgage deal is due to end in the next few months, as you can usually secure your next mortgage three to six months before you want it to begin.
Once you have a rough estimate, it can be helpful to compare different mortgage options to understand what your monthly repayments are likely to be.
Unless your situation is very straightforward, you may want to seek professional advice from a broker to find the best mortgage option for you. The advantage is that they will know which banks and building societies are more likely to accept your application. It’s definitely worthwhile if you are self-employed (unless you have been so for years) or your credit rating isn’t excellent.
If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
If you’re finding it hard to keep up with your mortgage repayments, please don’t suffer in silence. Our article What can you do if you can’t pay your mortgage? explains what to do if you’re struggling with higher costs.
Your credit card and loans
The fact that rates haven’t changed means that hopefully we won’t see many changes to the cost of other types of borrowing, such as loans, credit cards and overdrafts.
What you can do
If you’re paying a high rate of interest on your credit card borrowing, try and get a 0% balance transfer credit card deal, so that you can pay off what you owe without being hit by hefty interest charges. Remember though that you must try and clear your balance in full before the introductory 0% period ends, or you’ll start being charged interest.
If you can’t get one, you have the right to reject the interest rate rise within 60 days and close your credit card account. The credit card company must then give you a reasonable time to pay off the money you owe.
If you’re worried that you won’t qualify for a 0% credit card deal, there are several credit checker and credit matcher tools available – and some credit card companies will also give you an indication of whether you’d be successful before you apply.
You can find the current best balance transfer credit card and personal loan rates in our guide Balance transfer credit cards and personal loans compared.
If you have a loan which you want to pay off quickly, lenders must allow you to do this, although you may be charged an early repayment penalty to do so. Lenders can charge you up to two months extra interest if you choose to pay back your loan off sooner than planned. If your loan has less than 12 months left to run, they can only charge you a penalty of up to one month’s interest if you pay it off early.
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