Bank of England Base Rate Update: March 2025
The Bank of England’s Monetary Policy Committee (MPC) has once again reviewed interest rates, deciding to keep the base rate at 4.5%. This decision was made with inflation, economic stability, and employment in mind. But what does this mean for you, particularly if you have a mortgage or are planning to get one? Let’s break it down.
What is the Base Rate and Why Does It Matter?
The base rate is the interest rate set by the Bank of England. It influences how much banks and lenders charge for mortgages, loans, and savings accounts. When the base rate goes up, borrowing becomes more expensive, but savers get better returns. When it goes down, borrowing is cheaper, but savings rates drop.
The base rate plays a crucial role in controlling inflation. The Bank of England targets inflation at 2%, and by adjusting interest rates, it tries to keep inflation stable while supporting economic growth.
March 2025 Decision: Base Rate Held at 4.5%
At the latest meeting, eight out of nine MPC members voted to keep the base rate at 4.5%. One member voted for a slight reduction to 4.25%, but the majority agreed that maintaining the current rate was the best approach.
Key reasons behind this decision include:
- Inflation remains above the 2% target, currently at 3.0%, with a forecasted rise to 3.75% later in 2025.
- Wage growth and domestic price pressures are still relatively high.
- Global economic uncertainties, including trade policies and geopolitical factors, are influencing financial markets.
- The UK economy has shown slightly stronger growth than expected but remains sluggish overall.
What This Means for Mortgage Holders
If you already have a mortgage or are considering getting one, the base rate decision will impact you differently depending on your mortgage type:
Fixed-Rate Mortgages
- If you’re on a fixed-rate mortgage, your repayments won’t change until your deal ends. However, if you’re nearing the end of your fixed term, now is a good time to review your options.
- When you remortgage, you may find that rates are still relatively high compared to a few years ago, so seeking professional advice is crucial.
Variable-Rate Mortgages
- If you’re on a tracker mortgage (which moves in line with the base rate), your repayments will stay the same for now.
- If you have a standard variable rate (SVR) mortgage, your lender decides whether to pass on any changes. While the base rate hasn’t moved, lenders can adjust their SVR at their discretion.
What About First-Time Buyers?
For those looking to buy their first home, the base rate decision means that mortgage rates will likely stay where they are for now. Lenders have been reducing some fixed-rate deals in recent months, but affordability remains a challenge due to higher borrowing costs compared to previous years. Speaking to a mortgage adviser can help you find the best deal for your circumstances.
House Prices and Market Trends
The housing market has been recovering, with mortgage approvals and house prices showing signs of stability. Some buyers have been rushing to complete purchases ahead of upcoming Stamp Duty changes in April. While demand remains steady, affordability constraints are still a concern for many households.
What’s Next for Interest Rates?
Looking ahead, the Bank of England has indicated that any future changes to the base rate will depend on:
- How inflation progresses in the coming months
- The balance between supply and demand in the economy
- Whether wage growth continues to ease
The MPC will continue to monitor economic data and make adjustments if necessary. While some experts predict potential rate cuts later in the year, nothing is guaranteed.
Conclusion
The decision to keep the base rate at 4.5% means that mortgage rates are unlikely to change significantly in the short term. Whether you’re a homeowner, first-time buyer, or considering refinancing, staying informed about market trends is essential.
If you’re unsure about what this means for your mortgage or want to explore your options, get in touch with us at Kerr & Watson. Our expert advisers can help you navigate the market and secure the best deal for your situation.
Read more: Bank Rate maintained at 4.5% – March 2025
