Interest rates held at 4.75%: What it means for your mortgage and savings

The Bank of England has opted to hold the base rate at its current level, meaning interest rates will finish the year at 4.75 per cent.

The decision will come as little surprise given that yesterday, the Office for National Statistics reported that inflation rose to 2.6 per cent – above the Bank of England target of 2 per cent.

Last month, the Bank of England cut interest rates for the second time in 2024 to 4.75 per cent, down from 5 per cent.

Today, the Monetary Policy Committee voted by a majority 6–3 to maintain hold.  Three wanted to reduce base rate by 0.25 percentage points, to 4.5 per cent. 

The next decision is on 6 February 2025.  

We explain what the Bank of England’s decision to stick at 4.75 per cent means for your mortgage and savings – and whether rates will be cut again soon.

What does this mean for mortgage borrowers?

Today’s decision to hold the base rate at 4.75 per cent may seem like bad news for mortgage borrowers, many of whom will be desperate for their monthly costs to fall.

But the reality is that most borrowers would have seen little immediate benefit, even if rates had been cut. 

This is because lenders usually base their pricing on the longer-term trajectory of interest rates, rather than reacting to individual base rate decisions.

In addition, most borrowers are locked in to fixed-rate deals of two or five years, during which time their payments will not change.  

In the longer term, holding the base rate could mean mortgage rates stay higher for a little longer. 

Interest rates peaked at 5.25 per cent in September 2023 after 14 consecutive hikes from December 2021. 

As the rate cycle turned, mortgage rates have fallen. The decline accelerated over the summer, with money markets anticipating more rate cuts to come and lenders seeing their own funding costs decrease. 

> Mortgage calculator: Check the best rates based on your property value

Mortgage rates were falling up until the start of October, but have since risen, albeit with some lenders cutting rates in recent weeks.

Interest rates are expected to fall to around 4 per cent or 3.75 per cent by the end of 2025 before eventually settling at around 3.5 per cent.

Mark Harris, chief executive of mortgage broker SPF Private Clients, thinks today’s pause by the Bank of England will be disappointing news for many households.

‘While it is no surprise that the Bank of England maintained interest rates at 4.75 per cent given the recent rise in inflation, borrowers will still be disappointed,’ said Harris.

‘Those looking to remortgage in coming months should plan ahead as much as possible, speaking to a whole-of-market broker ideally six to seven months before their current deal ends to reserve a rate. 

‘Should rates rise by the time you take out your mortgage, you are protected from those increases, but if rates fall, you can ask your broker to review what is available nearer the time.’

What are today’s mortgage rates?  

According to rates monitor Moneyfacts, the average two-year fixed mortgage rate is 5.47 per cent, and the average five-year fix is 5.25 per cent.

It is a significant improvement on this time last year, when the average two-year fixed mortgage rate was 6.04 per cent and the average five-year fix was 5.65 per cent.

However, it is still much higher than in 2020-21 when, at times, average rates were hovering around 2.5 per cent.

Many borrowers can get rates lower than today’s averages if they shop around, especially if they have substantial equity in their home and a good credit history. 

The best two-year fixed mortgage rates are just above 4.2 per cent and the lowest five-year are just above 4 per cent.

Most people with a mortgage are not immediately affected by any base rate changes, as they are on fixed rates which won’t change until the end of their fixed term.

Around 82 per cent of households are on fixed rate mortgages, according to UK Finance. That equates to almost 7 million households.

What about tracker and variable mortgages? 

Those on trackers will no doubt be dissapointed given that any drop in base rate immediately benefits them. 

Some 8 per cent of households are on tracker mortgages – close to 700,000 in total. 

Tracker rates follow the Bank of England’s base rate plus a set percentage, for example base rate plus 0.75 per cent.

Borrowers on variable rates such as ‘discount’ rates and also standard variable rates (SVRs) will also be sad to see base rate remain the same.

Standard variable rates are lenders’ default rates that people tend to move on to if their fixed or other deal period ends and they do not remortgage on to a new deal.

These can be changed by lenders at any time, and will usually rise and fall when the base rate does – but they can go up or down by more or less than the Bank of England’s move.

Thanks to previous base rate cuts the average SVR has fallen to 7.85 per cent, down from 8.18 per cent at the start of 2024. 

Rachel Springall, finance expert at Moneyfacts said: ‘As we edge closer to the end of the year, borrowers may feel frustrated that mortgage rates have not fallen by bigger margins during 2024. 

‘Mortgage holders will be hoping that the Bank of England base rate will fall further next year, and if swap rates calm, this can lead to lower fixed mortgage rates. 

‘Cuts to the base rate may also delight borrowers who are stuck on a variable rate deal or are soon to come off their low-rate fixed deal, indeed there are estimated to be millions of borrowers due to refinance in 2025.’

Inflation watch: Inflation has risen to 2.6% and continues to creep above the bank of England’s 2% target

Ravesh Patel, director and senior mortgage consultant at Reside Mortgages added: ‘This base rate pause will continue to challenge borrowers on variable rates, as they’ve already seen increases in monthly payments due to prior hikes,’ said Patel.

‘For those considering fixed rates, lenders may keep products priced conservatively high, factoring in persistent inflation concerns. 

‘Holding at 4.75 per cent reflects the Bank’s priority on stabilising inflation, even if it means sustained pressure on borrowers.’

Patel also warns that fixed-rate borrowers – particularly those nearing the end of their terms – will face similar pressures and should aim to lock in a new rate sooner to avoid further potential increases.

What next for mortgage rates?

Market interest rate expectations are reflected in swap rates. A swap is essentially an agreement in which two banks agree to exchange a stream of future fixed interest payments for another stream of variable ones, based on a set price.

These swap rates are influenced by long-term market projections for the Bank of England base rate, as well as the wider economy, internal bank targets and competitor pricing.

Current swap rates suggest that interest rates will be lower over the coming years, but not dramatically so.

Hedging their bets: Some borrowers are opting for two-year fixed rate deals in the hope that interest rates will have fallen by the time they come to refinance

Five-year swaps are now at 4.1 per cent and two-year swaps at 4.27 per cent – both trending well below the current base rate.

The lowest five-year fixed rate mortgage is currently 4.01 per cent while the lowest two-year fix is 4.26 per cent – it is rare for the lowest rates to be either below or on par with the equivalent swaps like they are at the moment. 

If swap rates remain where they are, we are likely to see mortgage rates remain broadly where they are for next few months, according to mortgage broker, Mark Harris.

‘The trend in new mortgage pricing is downwards but mortgage rates are likely to continue to yo-yo over the next three months,’ said Harris.

‘Swaps have been gradually falling for a month but all those falls have been wiped out over the past three days.

‘It is only when we start getting regular base rate cuts that the market will react favourably and swap rates will fall. 

‘Until then swaps will continue to fluctuate as much as we have seen over the past 12 months, which makes it harder for lenders to consistently offer lower mortgage rates.’ 

Mortgage broker, Ravesh Patel agrees. He added: ‘For now, rates are likely to stay stable over the next few months. However, we have seen some rate reductions in the last couple of weeks.

‘Subject to the economy growing and inflation coming under control, sub-4 per cent mortgage rates could widely become available by the end of 2025.’

What does this mean for savers?

The base rate affects how much interest savers can earn on their money. In general, savings rates rise when the base rate is rising, and fall when it is falling.

When the Bank of England cut the base rate to 4.75 per cent in August from 5 per cent, This is Money analysis found at least 30 savings accounts had had their rates slashed or were pulled from the market altogether. 

Fixed-rate deals were particularly badly hit by the base rate being cut to 4.75 per cent last month.

Now that the base rate has been held at 4.75 per cent, savers won’t see banks move to cut rates as quickly.

James Blower, founder of website Savings Guru said: ‘This is good news for savers as it means there’s unlikely to be any significant changes to rates before or during Christmas. It also improves the prospects for rates in 2025. 

‘If the base rate only falls by 0.25 per cent in 2025 then we are likely to see easy access, fixed rate bonds and Isas all stay above 4 per cent.’

The Bank of England is forecasting four cuts to the base rate in 2025, which will bring the rate down to 3.75 per cent by the end of 2025.

Assuming this happens, James Blower says ‘it looks increasingly likely that the best-buy rates being offered today by the leading providers are not likely to be beaten in 2025.’

The average easy-access rate has fallen from 3.15 per cent since the start of 2024, according to rates scrutineer Moneyfacts Compare. It now stands at 2.91 per cent.

While the average one-year fixed-rate account is today 4.19 per cent. It has fallen from 4.87 per cent since the start of 2024.

James Blower believes easy-access best-buys will fall to around 3.6 per cent by the end of next year if the base rate falls to expected levels.

> Find the best savings rates using This is Money’s independent tables

Savers can get rates higher than today’s average account rates if they are willing to shop around.

The best easy-access deals, without any restrictions, pay around 4.85 per cent. If you’re getting a lot less than this at the moment, you should consider jumping ship to a provider that pays more.

Atom Bank is now offering a market-leading easy-access deal paying 4.85 per cent.

Someone putting £10,000 in this account could expect to earn £485 in interest after a year, if the rate remains the same.

Those with cash they won’t immediately need over the next year or two should consider fixed-rate savings.

The best one-year deal is offered by Al Rayan Bank paying 4.8 per cent. A saver putting £10,000 in this account will earn a guaranteed £480 interest over one year. It comes with full protection under the Financial Services Compensation Scheme up to £85,000 per person. Ziraat Bank also pays 4.8 per cent.

Other top one-year savings accounts are Smartsave which is paying 4.77 per cent, while Vida Savings is also paying 4.7 per cent. All offer FSCS protection.

Savers should strongly consider using a cash Isa to protect the interest they earn from being taxed.

James Blower said: ‘Maximise your Isa allowance if you haven’t already – the best easy-access Isa rates beat the best taxable accounts currently so take advantage.’

With interest rates higher and the personal savings allowance stuck at £1,000 for basic rate taxpayers and just £500 for higher rate taxpayers, it’s become much easier to fall into the savings tax trap.

Meanwhile, if you pay 45 per cent tax, you get no personal savings allowance at all.

Those wishing to keep their money in an easy-access cash Isa which they can dip in and out of can get 4.9 per cent with Trading 212’s flexible cash Isa*.

The top one-year fixed-rate cash Isa is paying 4.52 per cent interest, while the top two-year fix is paying 4.4 per cent.