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Bank of England Base Rate: A Week of Mortgage Relief?
Mortgage borrowers are breathing a sigh of relief this week as major lenders engage in a mini price war, offering deals below 4% before the Bank of England's (BoE) interest rate decision. This comes as inflation continues its downward trend, raising hopes for a base rate cut.
Mortgage Market Meltdown? More Like a Price War!
The average two-year fixed mortgage rate currently sits at 4.99%, a decrease from last week's 5.06%, while five-year fixes average 5.24%, down from 5.31%. This positive shift is thanks to intense competition among mortgage providers. Several lenders have announced significant rate cuts:
- Nationwide: Cuts of up to 0.3 percentage points, including a 3.84% deal for those with a 40% deposit.
- Halifax: Reductions up to 0.18 percentage points.
- TSB and Virgin Money: Lowering deals by up to 0.2 percentage points.
This competitive environment means some lenders are offering incredibly attractive rates. NatWest currently boasts the cheapest five-year fixed rate at 3.88% (40% deposit required), while Halifax leads with a 3.87% two-year fix (also requiring a 40% deposit).
But what about those with smaller deposits? Lenders like HSBC offer 95% LTV deals, requiring only a 5% deposit. However, these come with significantly higher rates (around 4.99% for two-year and 4.94% for five-year fixes).
The Bank of England's Expected Move
The BoE held its base rate at 4.5% in March but is widely expected to cut it to 4.25% on Thursday. This expectation stems from the encouraging drop in inflation.
The Consumer Price Index (CPI) reached 2.6% in the 12 months to March 2025, the slowest pace since December and nearing the BoE's 2% target. This positive trend has fueled anticipation of a rate cut to further stimulate the economy.
FCA's Impact on Mortgage Lending
The Financial Conduct Authority (FCA) recently announced plans to simplify mortgage lending, aiming to make the process faster and cheaper for borrowers. This includes relaxing some affordability assessment rules for certain customers.
This move could contribute to increased affordability and accessibility, although concerns remain regarding potential risks associated with loosened lending criteria. In addition, some lenders, like Skipton Building Society, are introducing innovative products such as Delayed Start Mortgages that offer borrowers a three-month repayment deferral to ease initial expenses.
Impact on Savers
While good news for borrowers, a base rate cut is often less favorable for savers. Lower base rates generally translate to lower savings account interest rates. It's a crucial time to review your savings account and consider switching to a more competitive provider before the rate cut takes effect.
Looking Ahead: What's Next?
The Bank of England's decision will have ripple effects across the economy. While a rate cut could boost the housing market and consumer spending, it also carries risks. The impact of President Trump's tariffs and their effects on global growth remain a significant uncertainty. The market will be closely watching the BoE's statement for clues about future interest rate policy.
Conclusion
The current mortgage market reflects a dynamic interplay between lender competition, decreasing inflation, and the anticipated BoE rate cut. While lower mortgage rates offer relief to borrowers, savers should proactively review their options. The upcoming BoE decision will be crucial in shaping the future economic landscape, with its potential impact on both borrowing and saving extending far beyond this week's positive mortgage news.
