Reading time: 3 minutes

Bank Rate holds at 5.25%, so when will rates drop?

The Bank Rate has remained unchanged for the fourth time in a row since it was raised from 5% to 5.25% in August 2023. Rate cuts aren’t expected until later in the year but mortgage costs have still been falling. 

Guest Author
Words by: Cathy Hudson

Contributing writer

Why has the Bank Rate stayed the same?

The Bank of England monetary policy committee voted by a majority of 6-3 to keep the Bank Rate unchanged this month, with two members voting to increase it by 0.25% and one to cut it by 0.25%.

Although energy prices have fallen, wage growth has eased and the prices of goods and services have been rising more slowly, there’s still a risk that overall inflation will increase again.

The conflict in the Middle East and the attacks on container ships in the Red Sea are two of the factors that could see prices rising faster again.

The committee forecasts that inflation will temporarily fall to its target of 2% in the second quarter of 2024 but that it will increase again over the rest of the year.

It then thinks it will be 2.3% in two years’ time and 1.9% in three. Because of this, there are no rate cuts for now, despite little economic growth. 

The Bank of England is giving nothing away about how long it thinks rates should stay the same but experts are predicting that there could be a cut in May or June.

What’s happening to mortgage rates?

While borrowers on variable rates will be disappointed that the cost of their mortgages won’t be going down this month, lenders have been cutting the rates of new mortgage deals over the last six months. 

This is good news for first-time buyers but anyone remortgaging is still likely to experience a shock increase in their mortgage repayments.

Mortgage costs – whether you’re taking out a new deal or reverting to your lender’s standard variable rate – remain much higher than they were two or five years ago, when most borrowers would have taken out their current deals.

Save money with Mojo Mortgages

Allow Mojo's remortgage experts to find a great deal for you. 95% of Mojo applicants find their mortgage joy with a successful application.

How have higher mortgage costs affected house prices?

Higher mortgage rates led to fewer property purchases and less mortgage lending in 2023, according to industry body UK Finance. Despite this drop in demand, house prices didn’t follow for the majority of UK homeowners.

According to our latest data, more than half (56%) of homeowners saw the value of their homes stay the same or increase by at least 1% in 2023.

A quarter of homes increased in value by between 1% and 5% while a 10th increased by a sizeable 5% or more.

The average value increase was £7,800. Percentage price rises were larger in more affordable areas of the country, with the biggest increases in the North West and Scotland.

This is dramatically different to 2022, though, when 96% of homes saw their value staying the same or going up and the average increase was £19,700 where it did rise. 

What’s the outlook for the mortgage market?

While mortgage costs have been going down, mortgage rates will continue to be relatively high compared to two or more years ago. Rate cuts are on the horizon, though, which will be welcome news for first-time buyers and homeowners alike. 

Our Executive Director of Research, Richard Donnell, says: 'The debate about the timing and scale of base rate cuts is important for the mortgage rate outlook.

'The peak in base rates last year led financial markets to bet on lower rates in 2024 and into 2025, which have shaved almost 1% off fixed rate mortgages over the last 2 months.

'There is a sense these cuts to rates are close to bottoming out for now and unlikely to move any lower.

'Inflation is down but not out and central banks want to get it under control before cutting base rates.

'It looks likely mortgage rates will remain in the 4.5% to 5% range, which is still cheap by long run standards.

'Those looking to move or refinance should chat to a broker and seek advice about the rates available and the best strategy for them.'

Mortgage calculator

Work out what your monthly mortgage payments could be with our mortgage calculator.

We try to make sure that the information here is accurate at the time of publishing. But the property market moves fast and some information may now be out of date. Zoopla Property Group accepts no responsibility or liability for any decisions you make based on the information provided.