THE Bank of England is widely expected to hold interest rates this week, in a blow to first-time buyers and homeowners.
The Monetary Policy Committee will announce its latest base rate decision on Thursday.
It had initially been expected the Bank would cut the base rate this month – a move that would have seen mortgage rates drop for millions.
But worse-than-expected inflation data in May means forecasters expect fewer – and slower – interest rate cuts this year.
It means home buyers and owners will be dealing with higher interest rates at a time when inflation remains high and wage growth has remained sluggish.
Interest rates have been cut four times since August last year and now sit at 4.25%.
But this is still far higher than five years ago, when rates were reduced to a historic low of 0.1%.
Big banks have been hiking their interest rates on mortgages in anticipation of fewer base rate cuts this year.
They include Halifax, Barclays and Santander.
Some brokers are now urging the Bank to make a bold move and go ahead with further rate cuts to help out struggling households.
Ranald Mitchell, director at Charwin Mortgages, told The Sun: “A bold but sensible series of rate cuts could finally ease the unbearable pressure on households, revive growth, and start plugging the Treasury’s black hole through stronger tax revenues.”
He warned that “waiting for the perfect moment” to cut rates is “paralysing progress”.
“Someone has to take the initiative and break this cycle, because right now, it’s being handled like a slow-motion car crash,” he said.
What brokers are saying
The majority of brokers believe the Bank is set to hold rates for June.
This is because cutting interest rates too quickly or sharply could lead to higher inflation.
The Bank uses interest rates to keep inflation at a low level.
If interest rates are high, people spend less money and price rises slow down.
The Bank’s target is to keep inflation at or below 2% – but it’s currently at 3.4%.
Stephen Perkins, managing director at Yellow Brick Mortgages, said: “Whilst all indicators point to a base rate reduction being beneficial and required, the Bank of England rarely take any decisive action based upon a single month’s data.
“The chances therefore are a hold in June and cautiously await more data before any potential rate cut.”
However with the latest inflation data due to come out on Wednesday, there is a chance the Bank could be influenced by that.
Kundan Bhaduri, entrepreneur at The Kushman Group, told Newspage the “siren call for a rate cut” is “deafening” – but the Bank of England is in an “impossible bind”.
Bhaduri added that an ill-timed move on interest rates “could easily reignite inflation, proving the Bank has succumbed to political pressure rather than economic prudence”.
Rob Peters, principal at Simple Fast Mortgage, said the decision could “go right down to the wire”.
Still, he said it’s most likely interest rates will be cut in August rather than this week.
On the other hand, Faisal Sheikh, managing director at Monmouth Capital, said he expected a “small cut”.
“The downsides to a small cut are limited, especially with recent poor economic data,” he said.
What does this mean for the economy – and for your wallet?
All of this comes against a difficult economic backdrop.
The UK economy contracted by 0.3% in April, partly due to the impact of huge tariffs imposed by US President Donald Trump.
But experts say it’s also been affected by Government’s tax hikes on businesses and rising household bills putting a dent in the public’s pockets.
On top of that, unemployment is rising with vacancies and payrolled jobs dropping sharply.
There are also fears inflation could rise further because conflict in the Middle East is likely to raise oil prices.
Frances Haque, chief economist at Santander UK, told The Sun that interest rate cuts may be restricted as a result.
“Neither of these are good for the UK economy or the chancellor who wants to see the economy grow consistently,” she said.
“There is hope that inflation will start to fall to levels compatible with the 2% target this year, but rising geopolitical risks may make that more challenging.”
If you’re a first-time buyer or coming to the end of your mortgage term, you may be watching this week’s base rate announcement closely.
Craig Calder, director of mortgages at TSB, said: “Whatever the outcome, make sure you talk to your bank or mortgage broker to ensure you get the best deal that suits your individual needs – as it’s one of the biggest financial decisions you can make.
“And don’t forget that most lenders will let you agree a mortgage rate three to six months in advance, with no obligation to take it if lower rates are available when you are ready purchase.”
Plus, there are still plenty of schemes available to help first-time buyers get onto the ladder.
It was confirmed in the Spending Review last week that the Government’s Mortgage Guarantee Scheme will relaunch permanently in July.
The scheme allows buyers to purchase a home with just a 5% deposit.
How to get the best deal on your mortgage
IF you’re looking for a traditional type of mortgage, getting the best rates depends entirely on what’s available at any given time.
There are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan-to-value ratio (LTV) has changed, you’ll get access to better rates than before.
Your LTV will go down if your outstanding mortgage is lower and/or your home’s value is higher.
A change to your credit score or a better salary could also help you access better rates.
And if you’re nearing the end of a fixed deal soon it’s worth looking for new deals now.
You can lock in current deals sometimes up to six months before your current deal ends.
Leaving a fixed deal early will usually come with an early exit fee, so you want to avoid this extra cost.
But depending on the cost and how much you could save by switching versus sticking, it could be worth paying to leave the deal – but compare the costs first.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also go to a mortgage broker who can compare a much larger range of deals for you.
Some will charge an extra fee but there are plenty who give advice for free and get paid only on commission from the lender.
You’ll also need to factor in fees for the mortgage, though some have no fees at all.
You can add the fee – sometimes more than £1,000 – to the cost of the mortgage, but be aware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
Remember you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statements.
