What is the impact of the Bank of England’s interest rate decision on my mortgage and savings?

The decision has been made by the Bank of England to maintain interest rates at a 15-year peak in order to lessen inflation.

The Monetary Policy Committee of the central bank has decided to maintain its base rate at 5.25% for the third time in a row. This comes after 14 consecutive increases in the cost of borrowing.

With inflation having been reduced from double digits to below 5 per cent – albeit still well above the government’s 2 per cent target – Threadneedle Street has once again refrained from pushing rates even higher.

Homeowners who are struggling with high mortgage expenses may receive some relief in the coming year. The market predicts a decrease in interest rates, which will have a ripple effect on the housing market and savings rates.

Expressing a positive outlook, mortgage advisor Riz Malik shared with The Independent that just three months ago he would have been ecstatic if he had known that the Bank’s final decision of the year would be to maintain interest rates.

In 2024, it is possible that the UK may experience up to four decreases in interest rates.

“According to Mr. Malik from R3 Mortgages, there has been a significant decrease in mortgage market rates, particularly for five-year fixed rates, over the past month. This is due to the anticipation of rate cuts in 2024.”

However, there has been a change in the discussion regarding a potential interest rate reduction in 2024. The focus has now turned to an anticipation of two to four cuts in the upcoming year, supported by the stagnant performance of UK businesses, according to Mr. Malik.

In recent weeks, it has become apparent that we may not just have one rate cut in 2024, but rather multiple cuts.

In January, lenders will emerge with strong determination.

According to Mr Malik, the year 2024 is looking promising for borrowing, particularly for mortgages. In January, lenders are anticipated to be competitive and eager to gain a larger portion of the market to compensate for the underwhelming year in 2023.

Several mortgage lenders are currently reducing rates multiple times within a week, with gradual decreases of approximately 15 basis points.

“In January, there will be a greater demand for business and competition will increase significantly,” Mr. Malik forecasted.

The mortgage specialist attributes the decrease in significant fluctuations in the market, characterized by fast rate increases, to lenders choosing to lower their rates. They further add, “I anticipate this trend to continue as the market is currently factoring in, particularly for five-year rates. In fact, even three-year rates are becoming appealing for the future.”

Although the base rate will remain the same at the end of the year, I believe the mortgage market will have a more positive outlook next year, which will also boost the housing market.

Signs of growth are already evident in the housing market.

The mortgage specialist expressed hope for the housing market, stating that it may take some time for people to become active in the first quarter. However, they have already noticed an increase in inquiries from first-time home buyers, particularly in areas where rent prices have significantly risen over the past year.

“We are currently observing a higher level of activity in December compared to what is typically anticipated. I do not anticipate this trend to continue into the upcoming year.”

According to Mr. Malik, many individuals have given up on selling their property this year due to it being an unfruitful effort. However, he believes that next year, a significant number of these people will re-enter the market.

The market needs to regain confidence, and if there is widespread discussion about reducing interest rates, I believe that confidence will be restored before any actual rate cuts occur – particularly if mortgage rates decrease as a result.

“During the holiday season, take some time to assess your financial situation. If you have been unsuccessful in selling a property in 2023, I believe that 2024 will present a completely different landscape. As I approach my 10th year in the mortgage industry next year, I can confidently say that 2023 was the most difficult year I have encountered. However, we have persevered through the challenges and are anticipating a brighter outcome in the coming year,” he stated.

Next year, there is a possibility that savings rates will decrease.

On the other hand, the sudden increase in interest rates that caused great hardship for homeowners and borrowers in 2023 resulted in banks offering unusually high savings rates – although still significantly lower than the inflation rate.

However, as interest rates are projected to decrease next year, Mr Malik pointed out the detrimental effect this will have on the returns available to savers.

“I believe that individuals interested in saving money through cash or fixed rate cash bonds may not have as many favorable options next year. This is due to the potential decrease in base rates.”

I believe that 2023 may have been the most successful year for saving cats.

The Bank of England may need to rapidly alter its philosophy.

Although the housing market has shown signs of improvement recently, Mr Malik warned that negative messaging from the MPC could potentially hinder this progress, even if the base rate is lowered.

Mr. Malik stated that discouraging the possibility of future rate cuts can be just as damaging as actually implementing them. He suggests that the Bank of England should refrain from excessive communication and instead make decisions based on current economic data, which could potentially benefit the UK housing market.

He was worried that there may be a too casual environment in Threadneedle Street regarding the state of the UK economy. He added that if other countries take action and the UK falls behind, it could harm their competitiveness and force them to quickly change their approach.

Source: independent.co.uk