Interest rates held at 4.75%: how will the Bank of England’s decision affect your money?

The Bank of England (BoE) has held interest rates at 4.75% today, Thursday 19 December.

Six members of the BoE's Monetary Policy Committee voted to keep the base rate unchanged, while three members voted to cut it to 4.5%.

This decision may be unsurprising to many experts after UK inflation rose from 2.3% in October to 2.6% in November, marking an eight-month high, while wage growth recently jumped by 5.2%.

Over the longer term, measures announced in the Autumn Budget are expected to increase inflation further, while the cost of borrowing is forecast to decline more slowly.

There is some debate about the number of base rate cuts expected in 2025, with BoE governor Andrew Bailey anticipating gradual cuts, while ING expects six reductions to 3.25% by the end of next year, although this could change.

How will mortgage rates be affected?

Variable-rate mortgage holders, who are usually impacted if the base rate rises or falls, will be unaffected by this decision.

The average five-year fixed-rate mortgage rate is currently 4.81%, according to Rightmove.

It’s been a confusing time for aspiring and existing homeowners as fixed mortgage rates initially rose following the Autumn Budget, but recently, lenders have been cutting rates.

However, despite this, mortgage rates remain much more expensive compared to a few years ago, with the numerous fluctuations this year showing just how unpredictable rates can be.

If you’re looking to get on the property ladder, it’s now more expensive to buy a home, and prices are likely to rise again in 2025. Demand may also surge as stamp duty changes come into effect next year.

If you’re considering applying for a mortgage soon, make sure you can afford it, have a good credit score, and clear any outstanding debt.

A mortgage broker can boost your chances of a successful mortgage application. Click below to find a regulated broker via Unbiased.

How will savings rates be affected?

Savings rates peaked around the end of 2023 and have been declining ever since.

If you’re seeking the best interest rate for your savings, now’s the time to lock one in, as they’ll likely continue to fall.

It’s worth opening a fixed-rate savings account as rates are still high. While you’ll no longer be able to access a 5% rate, you can open one with a rate of at least 4.6%, depending on how long you fix.

You may want to consider investing if you want higher rates than the above, have long-term financial goals, and don’t need easy access to your cash – but this comes with extra risk.

While your investments can rise and fall in value, you may be able to ride out any possible volatility by investing for at least a few years.

You can quickly match with a financial adviser via Unbiased, who can help you with an investment strategy or review your portfolio and advise on how to minimise your tax bill.

What about annuities?

Annuities offer a fixed income for your retirement or a fixed period to provide peace of mind.

Annuity rates have risen throughout 2024 despite two base rate cuts. Usually, any cuts are seen as having a negative impact, as the movement of the base rate is linked to annuity rates.

While annuity rates have held up this year, this cannot be guaranteed in the future, so it’s worth considering one now while rates are still generous.

Unbiased can match you with a qualified financial adviser who can help you find the best annuity for your circumstances.