THE Bank of England (BoE) has held Bank Rate at 3.75% – but borrowers have been warned not to assume this means cheaper mortgages.
The BoE’s Monetary Policy Committee (MPC) has voted 6-3 to keep its Bank Rate at 3.75% after it was announced yesterday that inflation had ticked up to 3.1%.
It warned that the longer that volatility in the Middle East continues, the greater its potential impact on inflation – and the more likely policymakers would be to raise the base rate to return inflation to the 2% target.
Experts said borrowers should not assume the hold would lead to cheaper mortgages, as fixed rates remain influenced by swap rates, funding costs and market expectations.
Tracker payments will remain unchanged for now, while savers may continue to benefit from elevated rates, although higher inflation will erode their returns and the pound could face pressure following the decision.
Governor Andrew Bailey said: “Today, we’ve held Bank Rate at 3.75%. So far, higher global energy costs have had a limited effect on price and wage setting in the UK.
“But the longer this volatility persists, the bigger the impact it will have on inflation, and the more likely it is we will need to raise Bank Rate to ensure that inflation falls back to our 2% target.”
Graham Nicoll, Financial Planner, Chartered FCSI at NCL Wealth Partners, said that borrowers should now assume that costs will remain higher for longer.
He added: “The decision to hold rates at 3.75% is no surprise. The bigger question is what comes next. Inflation remains uncomfortable and energy costs create further pressure, so households and businesses shouldn’t build plans around imminent rate cuts.
“My message to clients is simple: assume borrowing costs remain higher for longer, review mortgages and debt early, and make sure cash is working hard. If rates fall, that’s a bonus, not something your financial plan should depend on in the short term.”
Squeezed
Justin Moy, Managing Director at Chelmsford-based EHF Mortgages, said people are being squeezed by higher bills.
He added: “It was inevitable that Base Rate would remain unchanged, but that doesn’t rule out changes before the end of the year. It’s a difficult decision with inflation not being pushed by unruly high street spending – it’s basic fuel costs that are outside of everyone’s remit.
“Those gas and electric bills may increase by up to 25% by the start of 2027, so consumers are already being penalised, without any base rate increase on top. Mortgage rates will inevitably stay higher for longer; you don’t need a base rate increase to push those costs further, but savers may have a silent fist pump.”
Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, said the pound is the “immediate casualty”.
He added: “Of the G3, the Bank of England is the outlier, holding rates while the Fed and European Central Bank both hiked this month. The 6-3 MPC majority reckons existing restraint and labour market slack are containing second-round effects and a further hike would only inflict damage without touching global energy prices.
“The three dissenters disagree: with inflation forecast above 4% by early 2027, they want tightening now, before higher prices harden into wage settlements. For borrowers, tracker and variable mortgage payments hold steady, but fixed-rate deals stay elevated as swap rates price in prolonged energy volatility and geopolitical risk.
“Savers still get decent easy-access returns, for now though rising inflation will eat real returns unless you lock into a competitive fixed-term bond before any easing cycle begins. The immediate casualty is the pound, losing ground on the interest-rate differential against its main rivals.”
Stephen Perkins, Managing Director at Norwich-based Yellow Brick Mortgages, warned borrowers “not to assume a hold today means cheaper mortgages tomorrow”.
He added: “Today’s hold does not mean mortgage rates will stand still. Fixed mortgage pricing is driven heavily by wholesale funding costs and market expectations, which is why borrowers have already seen lenders increasing rates even with Bank Rate unchanged.
“The 6-3 vote also shows there is still real uncertainty over what comes next. For borrowers, the important thing is not to assume a hold today means cheaper mortgages tomorrow. Reviewing options early remains sensible.”
Craig Fish, Director at London-based Lodestone Mortgages, urged people to lock into a mortgage rate now.
He added: “Holding at 3.75% is the right call. Inflation at 3.1% and three MPC members pushing for a hike made this closer than markets expected, but raising rates now would have been a reaction to energy costs the Bank can’t control anyway. Borrowers shouldn’t read this as calm skies ahead.
“Swap rates have already priced in caution, and lenders are holding firm on the higher fixed rates we’ve seen through the summer. My advice to anyone coming off a deal in the next six months: don’t wait for a rate cut that isn’t coming, get advice and lock in a rate you can live with.
“The biggest risk isn’t today’s decision, it’s borrowers gambling on a fall the Bank has given no signal it intends to deliver.”
Lock in
Tracey Dixon, Buy-to-Let Mortgage Specialist & Owner at Cardiff-based Pure Mortgage and Protection, said savers may benefit from deposit rates remaining higher for longer.
She added: “Holding at 3.75% was the least surprising and, in my view, the most responsible decision. With inflation back at 3.1%, a cut would have risked moving too soon, while an increase would have added unnecessary pressure to households and businesses.
“The 6-3 split is the more interesting signal because it shows there is still real disagreement over what should happen next. For mortgage borrowers, today’s hold does not mean fixed rates will stand still. Fixed pricing is driven largely by swap rates and lender funding costs, so products could still be repriced even while Bank Rate is unchanged. Tracker borrowers will see no immediate change.
“Anyone whose deal ends within six months should review options now and keep them under review. Savers may benefit from deposit rates remaining higher for longer, but banks can change savings rates independently, so loyalty should not be assumed to pay.”
Matt Coulson, Founder at Rickmansworth-based Heron Financial Ltd, said “there’s no relief” in this decision for mortgage holders.
He added: “Holding was the right call. With inflation at 3.1%, cutting into above-target inflation would have been very hard to defend. The detail that matters is the 6-3 split and that the three dissenters wanted a hike. So the live argument on the committee has become whether rates need to go higher, which is a long way from the cuts many were hoping for.
“For mortgage holders there’s no relief in this. Fixed rates are priced off the swap market, which already reflects a higher-for-longer outlook, so today’s hold changes little, and anyone rolling off a cheap fix is looking at a higher payment. It doesn’t signal a fresh surge either, with the committee split and the economy far from booming.
“Savers will have their own read. On the mortgage side, the next real mover is the Budget, and until then this is a market holding its breath.”
