Mortgage holders and prospective homeowners have been dealt a blow as the Bank of England decided to keep interest rates on hold at 4.5%.
This decision, while expected by financial markets, is a bitter pill for many households, particularly those looking to remortgage. For homeowners whose fixed-rate deals from 2020 are coming to an end, this could mean an additional £354 per month on their mortgage payments.
The average rate for a two-year fixed mortgage stands at 5.19%, while five-year fixed deals average 5.34%, both slightly lower from the previous week, according to data from Uswitch.
The Bank of England held its interest rate at 4.5% this week amid mixed signals from the UK economy and a looming trade war.
Victor Trokoudes, founder and CEO at smart money app Plum, warned the next few months will not be easy for people’s finances in general. He explained: “With the base rate remaining at 4.5%, there may be a little relief for those who fixed their mortgage at the beginning of 2023 — the quoted interest rate on a two-year fixed rate mortgage at 75% LTV was 4.79% in Feb 2023, versus 4.66% two years later.
“Those who fixed five years ago are out of luck however. Quoted rates on five year fixes were just 1.67% back in Feb 2020. Remortgaging at 2025’s rate of 4.39% could mean an extra £354 a month for a 25-year mortgage of £250,000. To balance out these increases, consumers will have to budget carefully to ensure they remain financially resilient in the months ahead.”
Jenny Ross, editor of Which? Money, had similar concerns, stating that the rate decision will disappoint both prospective buyers and those coming to the end of their fixed-rate terms. "The decision to hold interest rates again will be a disappointment to both prospective buyers and those remortgaging, with homeowners coming to the end of their fixed rate terms likely to face considerably higher monthly repayments than they're used to.
Read more: Bank of England holds interest rates at 4.5%
"Anyone worried about managing their payments should speak to their mortgage lender, which is obliged to help. Lenders may be able to suggest alternative payment options, such as a temporary payment holiday or only paying the interest on repayments.”
Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, added that while the decision may be a setback for many, there are still strategies to ease the burden.
She said: “Keeping the headline interest rate on hold will be a blow for mortgaged homeowners and first-time buyers hoping for further respite from high borrowing costs. While three rate reductions since last August have provided some relief from the sky-high borrowing costs of the past few years, it won’t have solved all the affordability challenges existing homeowners and prospective buyers are still facing.
Haine also advised new buyers to be increasingly savvy, suggesting they consider longer mortgage terms or turning to family to help raise a larger deposit. "Average two- and five-year fixed-rate mortgages have eased over the past year, but inflation remains sticky, and prospective buyers and those looking to refinance are likely to feel concern about the decision to pause the rate-cutting cycle."
The current climate has left many wondering whether they should lock in a fixed-rate mortgage or opt for a tracker deal. Ravesh Patel, director and senior mortgage consultant at broker Reside Mortgages, highlighted the importance of planning ahead. "For mortgage borrowers, this means little immediate change," Patel said. "Lenders had already priced in expectations that rates would stay put for now, so mortgage rates are unlikely to move much in the short term."
Read more: 10 home upgrades that don’t need planning permission
Patel advised those due to remortgage to explore their options, as competition between lenders could lead to better deals.
This week, NatWest (NWG.L) has announced sweeping interest rate cuts across its fixed-rate home loan deals. Santander (BNC.L) has also cut some of its best rates.
Virgin Money has announced rate reductions across its product range, including selected 80% LTV purchase fixed rates cut by up to 0.13%, starting from 4.31%, and buy-to-let two-year fixed rates at 60% LTV reduced by 0.10% to 4.49%.
HSBC (HSBA.L) has a 4.07% rate for a five-year deal. This is unchanged from the previous week. For those who have a Premier Standard account with the lender, this rate comes in at 3.98%.
Looking at the two-year options, the lowest rate stands at 4.12% with a £999 fee, again unchanged from the previous week.
Both cases assume a 60% loan-to-value (LTV) mortgage, meaning buyers need to have at least 40% for a deposit.
HSBC offers 95% LTV deals, meaning you only need to save for a 5% deposit. The rates are much higher, however, with a two-year fix coming in at 5.39% or 5.08% for a five-year fix.
This is because the rate someone can get will be determined by their financial situation and the size of their deposit. The larger the deposit, the lower the LTV, allowing buyers to access better deals because lenders consider them less risky.
NatWest (NWG.L) has a five-year deal coming in at 4.12% with a £1,495 fee, which is unchanged from the previous week.
For a two-year fix, the cheapest deal comes in at 4.15%, also unchanged. In both cases, you'll need at least a 40% deposit to qualify for the rates.
Read more: What are green mortgages and are they the future?
However, lender is trimming rates by up to 24 basis points across its two- and five-year fixed-rate mortgage range, with changes taking effect from today.
Among the biggest reductions, the five-year fixed-rate remortgage at 90% loan-to-value (LTV) — which includes a £995 fee and £250 cashback — has been cut to 4.75%, a drop of 24bps.
First-time buyers will also benefit, with the five-year fixed-rate purchase at 90% LTV cut to 4.80%. The two-year fix at 90% LTV with a £995 fee and cashback has dipped to 4.96%.
At Santander (BNC.L), a five-year fix comes in at 4.10%, lower than the previous 4.13%, with a £999 fee, assuming you have a 40% deposit.
For a two-year deal, customers can also secure a 4.15% offer, with the same £999 fee, which is also lower than the previous 4.23%.
In addition to maintaining its current rate offerings, Santander has expanded its product range to support first-time buyers. The bank has introduced new fixed-rate deals for first-time buyers with loan-to-value (LTV) ratios ranging from 60% to 95%. These include options for two-, three-,five- and 10-year terms, as well as a two-year tracker mortgage. Notably, these new deals come with flexible product fees — either £999 or £0 — depending on the option chosen.
Santander has also introduced new mortgage products tailored to first-time buyers with large loans, featuring two- and five-year fixed-rate deals at 60% LTV, albeit with a higher £1,999 product fee.
Additionally, the bank is catering to first-time buyers purchasing new-build properties with the launch of new range of 60% to 95% LTV three-year fixed deals. Options available with a £999 or £0 product fee.
A five-year fix at Barclays (BARC.L) comes in at 4.06%, which is untouched from the previous week. For "premier" clients this rate drops to 3.99%.
When it comes to two-year mortgage deals, the lowest you can get is 4.11%, also unchanged from last week’s deal.
Barclays has also launched a new mortgage proposition designed to help new and existing customers access larger loans when purchasing a home. The initiative, known as Mortgage Boost, enables family members or friends to effectively "boost" the amount that can be borrowed towards a property, without needing to lend or gift money directly or provide a larger deposit.
Read more: Best credit card deals of the week
Under the new scheme, a borrower’s eligibility for a mortgage can increase significantly by including a family member or friend on the application. For example, an individual with a £37,500 annual income and a £30,000 deposit might traditionally be able to borrow up to £168,375, enabling them to purchase a home priced at around £198,375.
However, with Mortgage Boost, if a second person — such as a parent — joins the application, the total borrowing potential can rise substantially. In this case, if the second applicant also earns £37,500 a year, the combined income could push the borrowing limit to £270,000, enabling the buyer to afford a home worth up to £300,000.
Nationwide (NBS.L) is offering a five-year fix at 4.34%, which comes with a £999 fee and requires a 40% deposit. This is unchanged from last week.
Nationwide offers a two-year fixed rate for home purchase at 4.34% with a £999 fee — also for borrowers with a 40% deposit. Again, unchanged from the previous week.
Halifax, the UK’s biggest mortgage lender, offers a five-year rate for 4.17% (also 60% LTV), which is higher than last week’s 4.12%.
The lender, owned by Lloyds (LLOY.L), has a two-year fixed rate deal coming in at 4.06%, with a £999 fee for first-time buyers, which is lower than the previous 4.15%.
Read more: How to negotiate house prices
It also offers a 10-year deal with a mortgage rate of 4.78%.
The lender has announced the launch of a new 1.5-year fixed-rate remortgage product in response to growing demand among borrowers for shorter-term deals.
Shorter-term fixes offer certainty over monthly payments while also allowing households to switch to a new deal sooner to capitalise on lower rates.
With sub-4% mortgages basically off the market unless you’re a premium client, prospective homeowners do not have a lot of reasons to smile when it comes to finding a good deal.
Barclays currently has the cheapest deal on the market for a five-year fix, and Halifax has the cheapest for a two-year deal, both at 4.06%. However, they both require a 40% deposit, so you will need a hefty amount of cash upfront to secure the deal.
Given the average UK house price sits at £366,189, a 40% deposit equates to about £147,000.
A growing number of homeowners in the UK are opting for 35-year or longer mortgage terms, with a significant rise in older borrowers stretching their repayment periods well into their 70s.
Read more: UK house prices climb £10,431 amid demand for bigger homes
Lender April Mortgages is offering buyers the chance to borrow up to six times their income on loans fixed for five to 15 years, from a deposit of 5%. Both those buying alone and those buying with others can apply for the mortgage.
The company, which is part of an independent Dutch asset manager DMFCO, has interest rates starting at 5.20%, with an application fee of £195.
Skipton Building Society has also said it would allow first-time buyers to borrow up to 5.5 times their income, in an effort to support more borrowers on to the housing ladder.
Leeds Building Society is increasing the maximum amount that first-time buyers can potentially borrow as a multiple of their earnings, with the launch of a new mortgage range. Aspiring homeowners with a minimum household income of £40,000 may now be able to borrow up to 5.5 times their earnings.
Mortgage holders and borrowers have faced record-high repayments in recent years, as the Bank of England's base rate has been passed on by banks and building societies.
With 1.8 million fixed mortgage deals set to end in 2025, according to UK Finance, many homeowners will be hoping the Bank of England acts quickly to cut rates more aggressively. At the same time, savers will likely be rooting for rates to remain at or near their current levels.
Read more:
Download the Yahoo Finance app, available for Apple and Android.
