How does the base rate impact mortgage rates?

Mortgage rates hit a 15-year high in 2023, but they've fallen in recent months. While not as low as they were a few years ago, the average fixed mortgage rate now stands at 4.9%* compared to 6.2%* last July, according to our broker partner Mojo Mortgages.

While falling rates came as welcome news to borrowers, there have been some rate increases announced by lenders in the weeks since the latest base rate announcement.

For those who need a mortgage soon, fast-changing deals show the importance of using an expert broker, like our partner Mojo Mortgages, who can search across the market to recommend your best mortgage deal during times of uncertainty.

So, why are mortgage rates changing so much, despite the base rate remaining stable? In this article, we explain what the base rate is and its impact on mortgages, as well as savings. We also look at average mortgage rates over the past six months and whether they are set to fall in 2024.

What’s the current base rate for the Bank of England?

The current Bank of England base rate is 5.25%.

The last base rate announcement was on 1st February 2024. This rate has stayed the same since August 2023.

The Bank of England's Monetary Policy Committee (MPC) meets 8 times a year, or roughly every 6 weeks. The next MPC meeting is scheduled to be on the 21st March 2024.

Before August, the base rate was increased 14 times in a row. This was in an effort to fight rising inflation, by encouraging people to save rather than spend or borrow. As a result, mortgage rates have risen substantially since the end of 2021.

How does the base rate affect your mortgage?

The base rate’s overall impact on your mortgage depends on the type of mortgage you have.

Fixed-rate mortgage:

With a fixed-rate mortgage, your interest rate remains the same throughout your mortgage term.

But fluctuations in the base rate can influence the rates offered for any new fixed-rate mortgage deals. So if you’re remortgaging, the rates available may be different to when you initially secured your current mortgage deal.

Tracker mortgage:

If you have a tracker mortgage, your interest rate is normally linked to the base rate.  This means any changes in the base rate directly impacts your mortgage rate and your monthly repayments.

For example, if the base rate increases by 0.5%, your mortgage rate also increases. If the base rate falls, so does your mortgage rate

Discount and standard variable rate mortgages:

If you have a discount mortgage, your interest rate is set at a certain level below your lender’s standard variable rate (SVR). The SVR is the one you’re moved on to after your initial mortgage deal ends, and is usually higher than other rates on the market.

The standard variable rate is set by your lender, but can be influenced by base rate changes. If you have a discount mortgage or are currently on the SVR and the lender chooses to increase or decrease it, you’ll face a corresponding change in your mortgage payments.

If you’re unsure about getting a mortgage, the expert advisers at Mojo Mortgages are happy to help at no charge.

Bank of England base rate and mortgage rates over the past year

Here are all the base rate announcements from the past year, alongside what the average fixed mortgage rate was at the time.

Over the last few months, the average fixed rate has actually dropped below the base rate due to several mortgage lenders reducing rates on their fixed-rate deals. 

This may be due to some signs that inflation was falling, which led to some expectations that the base rate may fall sooner than expected. Lender competition also likely caused rate reductions, as banks and building societies repriced their deals to attract more customers. 

Rates have increased slightly in the past couple of weeks after the most recent base rate announcement. This may be due to the Bank of England stating that they are waiting for firm evidence that inflation is under control before reducing the base rate. 

What happens if my mortgage is affected by the base rate change?

If you’re on a tracker mortgage deal, your lender should contact you. They’ll inform you of the new monthly payment amount and the date that this will take effect.

For those on discount mortgages or the SVR, your lender should also notify you if your rate has changed and what your new payment amount is.

If you have any concerns following a base rate announcement, you can reach out to your lender.

How has the base rate impacted savings? 

Base rate increases are designed to encourage people to save rather than borrow. But, despite the base rate remaining at 5.25%, savers have suffered as rates have fallen on fixed-rate accounts. 

What our Savings expert says

“At the time of the Bank of England’s last decision in December, the top interest rate for a one-year fixed-rate account was 5.70%, whereas this week the top rate for a similar account is 5.21%.

“The monthly average for all savings accounts also stood at 4.3% in December, whereas now it’s 4.1%. This clearly illustrates that although the base rate has remained the same, providers are reducing their rates, so we could see a similar pattern this month.

“Fortunately, it’s still worth savers moving their money if it’s currently sitting in an account earning little to no interest, as there are many accounts offering rates above inflation.

“If the interest rate is above inflation then it gives your money more purchasing power - a key motivation for savers.

“Plus, despite the falling rates on fixed-rate accounts, it’s still a good time to lock away your money, as you never know how long the top rates will last…”

Lucinda O'Brien Savings Expert

Will mortgage rates go down in 2024?

Mortgage rates have fallen over the past few months, but we’ve recently seen some increases again. This volatility means that it’s hard to say for certain whether rates will go down in 2024 as it’s very difficult to predict what’ll happen next in the market.

We can say that the base rate has remained static at 5.25% for the past 6 months. And Andrew Bailey, Governor of the Bank of England, has indicated that the Bank of England doesn't need to wait for inflation to come back down to the target of 2% for them to start cutting rates. The inflation rate was 4% for January, which was slightly lower than market expectations. 

But Andrew Bailey also indicated that they're waiting for clear signs that inflation is easing when deciding whether interest rates can be cut. He said they would look at the following following factors to help them assess this:  

• Services prices
• Pay rises
• Quantities in the labour market

What our Mortgage expert says:

“While some economists forecast a gradual decline in mortgage rates until mid-2025, this is impossible to say for certain. Mortgage rates largely depend on economic conditions and inflation, which can be unpredictable. This is shown by certain lenders increasing rates on fixed rate products in recent weeks, after months of declines.

“For those who are due to remortgage soon, the average SVR currently stands at 8.7% compared to an average fixed rate of 4.9%, so you do stand to save money in the short term by remortgaging.

“You may be tempted to wait on your lender’s SVR for a while to see if rates fall further. But be aware that the market is unpredictable, and rates won’t necessarily continue to decline. Whatever you do, make sure you look at the costs involved with both options so you’re prepared for the payments.”

Claire Flynn Mortgage expert

How to get the best mortgage deal

The best mortgage deal depends on your personal circumstances. But there are things you can do which may help improve your chances of getting a cheaper mortgage deal:

• Put down a larger deposit if you can afford to, as a larger deposit means a bigger loan to value (LTV) ratio, which usually means better rates
• Check that you have as little debt as possible and reduce overall spend on non-essential outgoings
• Make sure all credit card and other payments are made on time
• Check that you’re on the electoral register and review your credit report for any mistakes
• Use a whole-of-market mortgage broker, who can look at deals from lots of different lenders to find the best one for you

Ultimately, there are lots of different factors that affect what rates and deals you have access to. If you’re ready to secure your next mortgage deal, speak to our whole-of-market experts at Mojo Mortgages.

*All mortgage rates are based on Mojo Mortgages data of fixed-rate mortgages available at the time from 5 of the biggest lenders (HSBC, Santander, Nationwide, Natwest and Halifax).

**All savings rates are based on Defaqto data of fixed-rate savings accounts available at the time

All mortgage and savings rates are correct as of 26 February 2024 - rates are subject to change at any time.