Homeowners could be forced to pay almost £1,000 extra per year after Bank of England hold base rate at 5.25%

Even with May’s inflation figure hitting the target level of two per cent target yesterday, the Bank of England (BoE) has decided to hold the base rate at 5.25 per cent ahead of the General Election on July 4.

As the interest rate remains unchanged those on a standard variable rate will lose out. The same will apply to those on tracker rates, whose interest rate mirrors the the Bank of England base rate.

Figures from Moneyfacts show that on the average UK house price of £281,000, a 0.25 per cent cut for someone on the standard variable rate, would have reduced their annual mortgage repayment by £564.

In London, where the average house price is £502,000, the yearly repayment would have fallen £996. The figures are similar for the average tracker mortgage, which would have brought annual savings of £516 across the UK and £924 in London.

David Hollingworth, of broker L&C Mortgages, said: “There’s just a lack of relief for those on variable rates. You’re going to be hanging on every word that comes out of the Bank of England.

"There’s been a lot of talk about when the base rate will be cut and it’s painful for those still waiting for that. Sadly, it looks like it will be August at the earliest. It also means that the descent of the base rate hasn’t started as early as would have been hoped, so there may not be as many cuts as they were hoping for.

“Those who have drifted onto standard variable rate will be feeling it the most. If anyone is on a standard variable rate, they need to think hard about why and what alternatives might be open to them. For those that can’t switch lenders, looking at options for your current lender might make sense.”

Moreover, the average two-year fixed mortgage has increased by 3.58 per cent since December 2019, data from Mojo Mortgages has shown.

After the Conservatives were elected in May 2010 (after the 2008 recession), the average rate for a two-year fixed mortgage rate at a 75 per cent loan-to-value (LTV) was 3.78 per cent. When the Conservatives were then re-elected in May 2015, it was 1.9 per cent.

In May 2017 and December 2019, it was 1.49 per cent and 1.42 per cent respectively. However, today, the average two-year fixed-rate mortgage (75 per cent LTV) is currently five per cent.

To put this into perspective, someone with a £200,000 mortgage and a 25-year term faces an additional £378 a month if they move from a 1.42 per cent rate to a five per cent rate. That’s an extra £4,536 per year.

Around 1.6 million fixed-rate mortgages are due to end or have already ended at some point in 2024, according to trade association UK Finance.

Rachel Springall, a finance expert at Moneyfactscompare.co.uk, said: “The rising cost of mortgages may cause deep concern for borrowers about to come off a fixed-rate deal and needing to refinance.

“Affordability is a pressing point for both homeowners looking to refinance and new buyers, so those struggling to see how they can afford mortgage repayments will no doubt be desperate for interest rates to come down.

“Homeowners unsure on whether to lock into a new fixed-rate mortgage may still find it more affordable than falling onto a standard variable rate, which stands above eight per cent. This rate has almost doubled since the Bank of England started increasing base rate back in December 2021.

”The average standard variable rate (SVR), which borrowers end up on when their initial deal ends, stands at 8.18 per cent, which is unchanged month-on-month and slightly down from 8.19 per cent in December 2023.

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As the Bank of England remain neutral ahead of the General Election, making a rate change weeks before voters head to the polls could be seen as influencing voters, an expert suggested.

John Fraser-Tucker, head of Mortgages at online mortgage broker Mojo Mortgages said: “The housing policies of the elected government are likely to impact the outlook for the base rate going forward.

"Labour’s manifesto seems to focus more so on first-time buyers as they’ve stated that they’ll make the existing mortgage guarantee scheme permanent under the name “Freedom to Buy.

"They have also claimed that they’ll help over 80,000 young people get onto the housing ladder over the next 5 years. Comparatively, the Conservatives have focused on policies that they believe will bring down mortgage costs.

“Given the contrasting focuses, it makes sense for the BoE to wait and see which government is elected before lowering the base rate, otherwise it could add more uncertainty to the mortgage market right now.”