Base rate announced. Now reduced from 5% to 4.75%

By TMG | 11th November 2024

The Bank of England reduced the base rate from 5% to 4.75% at the latest MPC meeting on the 7 November 2024. 

What are the impacts of interest rates? 

Interest rates impact mortgage, credit card, and savings rates for millions of people across the UK. When the interest rates rise, many people face higher mortgage and loan payments, leaving them with less money to spend on other things. This reduces the overall spending money spent in the economy. On the other hand, bond buyers, lenders, and savers all benefit from higher rates.

With customers cutting back on their purchases, businesses are less likely to raise prices. But, when price increases slow down, inflation tends to fall. 

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How would the base rate affect the mortgage industry?

The BoE set the base rate across the market. If you have a variable or tracker mortgage you will be affected by the rise and fall of the base rate. If you are lucky enough to obtain the fixed rate before the base rate has risen, it won’t affect your mortgage during the “fixed period”, but you might want to look ahead and prepare yourself to remortgage.

If your mortgage is £150,000 on 2.50% interest rate, your mortgage monthly payments are likely to be £312.50 on interest only mortgage. 

If the interest rate hiked to 5%, your mortgage monthly payments are likely to be £625 on interest only mortgage.

Suddenly your mortgage has doubled and of course it would affect your budget, to which you will have less money to spend on other things.

What will the interest rate be like in 2025?

Predicting the future of interest rates is challenging, as it depends on whether inflation stays consistently below the Bank of England's target.

The outlook has shifted following October's Budget announcement by Chancellor Rachel Reeves. Her plan to borrow and spend billions of pounds has led financial markets and the bank to expect interest rates to be reduced more slowly than previously anticipated.

Source

Bank of England., (2024) what are interest rate Available at: https://www.bankofengland.co.uk/explainers/what-are-interest-rates#:~:text=At%20the%20moment%2C%20Bank%20Rate,links%20to%20more%20detailed%20reports.(Accessed 11/11/2024)