What does the Bank of England’s latest interest rate pause mean for households?

Monthly hikes in base rate may have stalled, but the cost-of-living squeeze has not gone away

The decision to leave interest rates on pause may help to boost housing market confidence, but experts have warned that households could face another tough year ahead as budgets remain squeezed.

The Bank of England base rate was held at 5.25 per cent on Thursday. In September, the Bank also kept rates unchanged at 5.25%, which had been the first hold decision for nearly two years after 14 hikes in a row.

Andrew Hagger, a personal finance expert from Moneycomms, said: “The monthly hikes in base rate may have stalled, but the cost-of-living squeeze hasn’t gone away – increased energy costs, higher prices at the pumps and soaring mortgage rates mean there’s little respite for the household budget at the moment.

“Many people will have to tighten their belts this Christmas, but will be hoping that 2024 is less harsh on their bank balance – however, any rate reductions will be slow and steady, so it’s likely to be another tough year ahead.”

Alastair Douglas, CEO of website TotallyMoney, said: “Buy now, pay later (BNPL) has boomed.”

When the Bank of England announced for interest rates to remain at 5.25% in September, we registered an almost immediate impact on the property market with buyers feeling more confident to move forward with their property search

Matt Thompson, Chestertons

Earlier this week, the Financial Conduct Authority (FCA) said an estimated 14 million adults across the UK used BNPL payment options at least once in the six months leading up to January 2023.

The FCA said its research indicated that frequent users of BNPL tended to be more likely to be in financial difficulty, such as having rising debts or missed bill payments.

Estate agents may be hoping that the continued freeze on interest rates, and the impact for mortgages, could help to inject more confidence into the housing market.

Figures from Nationwide Building Society this week showed that UK house prices rose by 0.9% on average month-on-month in October, but were 3.3% lower when compared with October last year.

Rachel Springall, a finance expert at Moneyfactscompare.co.uk, said that if house prices fall in the coming months, mortgage borrowers could have more chances to find an affordable property.

But she cautioned: “However, aspiring first-time buyers will be disheartened to see the average cost of rent is rising, which hampers their disposable income and their chances to maximise saving for a deposit to get a foot on the property ladder.”

Matt Thompson, head of sales at London-based estate agent Chestertons, said: “When the Bank of England announced for interest rates to remain at 5.25% in September, we registered an almost immediate impact on the property market with buyers feeling more confident to move forward with their property search.

“Today’s news that rates remain unchanged provides at least some certainty that the cost of borrowing won’t increase further for the time being, which will likely result in more house hunters entering the market before the year ends.”

Mortgage rates have been improving slowly but surely and today's decision should only help to ensure that trend continues for now

David Hollingworth, L and C Mortgages

Andrew Montlake, MD of Coreco Mortgage Brokers, said: “You could almost hear the collective sigh of relief from mortgage borrowers across the country as the Bank of England sensibly decided to keep interest rates on hold once more.

“They do now seem to be heeding the warnings from some quarters that going too far with rate rises could cause significant problems for the economy as a whole.”

Nathan Emerson, chief executive of property professionals’ body Propertymark, said: “For a healthy property market, households need a longer-term confidence beyond only financially making it to the end of each month.

“It is encouraging to witness many buyers still having the confidence to enter the market currently, but we need to see stability and a firm end to the potential dread some people experience each time there is a new interest rate decision.”

David Hollingworth, associate director at L and C Mortgages said: “Mortgage rates have been improving slowly but surely and today’s decision should only help to ensure that trend continues for now.

“Nonetheless, borrowers approaching the end of their current deal should shop around to ensure they have a rate in place.

“They will be able to review if the market continues to improve, but having a rate in place should help avoid an expensive period on a standard variable rate that can be well over 8% or even 9%.”

Prospective homebuyers and movers will be hoping that banks reduce fixed rates in anticipation of future base rate falls

Sam Richardson, Which? Money

Sam Richardson, deputy editor of Which? Money, said: “The base rate remaining unchanged will provide reassurance to those looking to move or remortgage, but won’t help households already struggling with mortgage repayments.

“Mortgage holders on a tracker or standard variable rate should see no change to their monthly repayments. Prospective homebuyers and movers will be hoping that banks reduce fixed rates in anticipation of future base rate falls.

“However, with nearly half a million homeowners coming off fixed-term deals over the Christmas period, and still likely to see their monthly payments rocket, banks must be ready to respond with tailored support.”

Many lenders have signed up to a mortgage charter, which gives borrowers struggling with their mortgage payments various options, for example, extending the length of the mortgage or paying interest-only for a period.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “While the days of rock-bottom mortgage rates are long gone, we expect pricing to continue to improve over coming weeks. Although we know a lot can change on the back of negative data, for now the outlook is much more promising than it was just a few months ago.

“However, there is no room for complacency as borrowers due to come off cheap fixes still face a payment shock. It is important to plan ahead as much as possible and act now.”

For savers, there remains a wide choice of accounts with attractive rates available for all levels of deposit. Shopping around can now make a sizeable, financial difference

Andrew Gall, Building Societies Association

Andrew Gall, head of savings and economics at the Building Societies Association (BSA) said: “The number of borrowers struggling to maintain their mortgage payments has started to increase.”

He added: “Societies are conscious that it is a real worry for families and individuals who are having difficulty meeting their mortgage payments. They are ready and well equipped to offer practical, tailored support to anyone who may be struggling, and I would encourage anyone with concerns to contact them as soon as possible, preferably before they miss any payments.”

Mr Gall also urged savers to shop around, saying: “For savers, there remains a wide choice of accounts with attractive rates available for all levels of deposit. Shopping around can now make a sizeable, financial difference, particularly for those who hold most of their savings in their current account. There is currently £260 billion of savings in accounts not earning any interest.”

Becky O’Connor, director of public affairs at online pension provider PensionBee, said: “Expectations of further rate rises have dampened – this looks like a point of rest for rates, before possibly falling again some time next year.

“If that’s the case, the market volatility of the past few months could settle, benefiting pension savers who depend on investment performance to boost their pots.

“For those approaching or in retirement who have found managing their retirement and withdrawal plans stressful because of market ups and downs, this potential change in monetary policy direction might offer some respite.

“For people with retirement money tied up in savings, it will be important to keep chasing decent rates, as high-paying accounts may not hang around for long.”