Next week, some homeowners may witness a change in their mortgage payments.
On Thursday, March 20, the Bank of England (BoE) will assess the UK’s base rate and determine whether it should increase, decrease, or remain unchanged. Factors that could influence the Monetary Policy Committees (MPC) include the recent inflation data which indicates a drop in the Consumer Prices Index (CPI) from 3% to 2.5% in December.
Despite this seemingly positive statistic, the MPC will likely also take into account economic uncertainty in key regions, particularly the US, which has experienced a variety of government tariffs that could affect the global economy as a whole. At present, the base rate stands at 4.5%, following three rate cuts between August and November last year.
How the base rate affects homeowners
The base rate is primarily used to determine interest rates on loans and mortgage payments calculated through a variable interest rate contract. Consequently, if the base rate rises, loan and mortgage payments will follow suit.
Conversely, if interest rates are reduced, homeowners could see their payments decrease. However, homeowners on a fixed rate will not be affected by the Bank’s decision this month until their fixed term deadline date concludes.
Will the base rate be cut this month?
The Bank of England’s next move on interest rates remains shrouded in mystery amidst global economic uncertainty, which could cause MPC members to think twice before implementing another cut.
James Enos from Hodge Bank weighed in, observing that despite a steady decline in swaps, the market’s unpredictability, fuelled by events both domestic and international, suggests the base rate might not see drastic changes over the year. He remarked: « We have seen a steady reduction in swaps; however, the market remains unpredictable due to events both at home and overseas. »
Looking ahead, the consensus seems to be that 2025’s interest rates will echo those of the previous year. Initial optimism for multiple base rate cuts has waned, with a dual reduction now appearing to be the more likely outcome.
Enos advised: « The prevailing expectation is that interest rates in 2025 will largely mirror the levels seen in the past year. Initially, there had been hopes for multiple base rate reductions in 2025; however, these expectations have gradually been tempered, as more analysts are now considering two base rate reductions as a more realistic scenario. »
He further counselled consumers to stay alert, warning that even with potential rate decreases, the broader interest rate climate is expected to remain above pre-pandemic figures.
« Our advice to consumers is that they should remain mindful that, even with potential rate cuts, the overall interest rate environment will still likely remain higher than pre-pandemic levels. »
Adding to the discourse, Tom Bill from Knight Frank shared his insights: « Markets still expect two Bank of England rate cuts in 2025 and we still believe there will be single-digit house price growth, but some caution is understandable. »
