Bank of England holds base rate at 5.25% as General Election looms

With two weeks to go until the General Election, the Bank of England’s Monetary Policy Committee (MPC) today voted 7 to 2 in favour of maintaining the base rate at 5.25%.

This may come as a surprise to some; only yesterday, figures from the Office for National Statistics (ONS) revealed the Bank of England had successfully met its 2.0% target for inflation.

However, given the wider political context, and that core inflation (excluding energy, food, alcohol and tobacco) still sits at above 3.0%, the decision falls in line with many economists’ expectations.

What does this mean for mortgage borrowers?

“Affordability is a pressing point for both homeowners looking to refinance and new buyers, so those struggling to see how they can afford mortgage repayments will no doubt be desperate for interest rates to come down,” explained Rachel Springall, Finance Expert at Moneyfactscompare.co.uk.

Despite a promising start to the year, average mortgage rates have risen steadily over recent months as lenders respond to volatile swap rates and delayed forecasts for a potential cut to the base rate. After witnessing a 0.02 percentage point increase month-on-month, the average two-year deal charged 5.93% at the start of June – encroaching upon where it stood six months ago (6.04%). Meanwhile, the average five-year deal saw a similar increase to reach 5.50% this month.

Nevertheless, Oliver Dack, Spokesperson for Mortgage Advice Bureau, urged borrowers not to be deterred. “We understand some people may be hesitant, given the current political uncertainty, but it could prove more expensive for borrowers to put off securing a new deal – particularly those coming to the end of a fixed mortgage and needing to refinance,” said Dack.

Indeed, with the average Standard Variable Rate (SVR) continuing to charge 8.18%, at this rate borrowers would pay £287 more each month than if they opted for a typical two-year deal (based on a £200,000 mortgage over a 25-year term).

On whether he thinks mortgage rates will fall in the wake of the General Election, Dack said ‘there is no guarantee’.

“The news of a General Election being held sooner rather than later was unexpected yet welcomed, as this should provide the market with some stability going into the latter half of the year,” he explained. “That being said, there are a great many factors at play that can impact mortgage rates, so eyes will turn to the next Government and future base rate decisions.”

In the meantime, anyone struggling to meet repayments should speak to their lender or consider seeking professional advice from a broker.

What about savers?

Meanwhile, in the savings market, average ISA rates tapered off slightly as we move further away from the peak season. Even though a typical easy access ISA fell to 3.31% on a first-of-month basis (down from 3.33% at the start of May), those in need of a tax wrapper may be relieved to note this is on par with six months ago.

In contrast, the average rate for an easy access savings account increased by 0.01 percentage point over the same period, to pay 3.12% at the start of this month, but is down from 3.18% in December 2023.

However, as many of the very best returns across savings and ISAs remain in excess of 5.00% AER, Springall said “consumers would be wise to review their rate if they have not done so over the past six to 12 months”.

“As variable rates can fall as well as rise, some savers may want to take advantage of a fixed bond or ISA for a guaranteed return if they are concerned interest rates will fall in months to come,” she explained.

“Whichever savings account consumers choose, it’s important they are aware of any restrictive criteria, keep on top of the best rates across the savings spectrum and proactively switch.”