Interest rates held at 5%: what is the likely impact on UK mortgage and savings rates? 

The Bank of England (BoE) has held interest rates at 5% today, Thursday 19 September.  

This comes after the BoE previously cut the base rate from 5.25% to 5% in August.  

Eight members of the BoE's Monetary Policy Committee voted to keep the base rate unchanged, while one member was in favour of reducing it by 0.25 percentage points.  

In August, UK inflation was 2.2%, unchanged from the previous month, as an increase in airfares was offset by lower fuel prices and slower rises in restaurant prices.  

In the US, inflation was 2.5% in the year to August, down from 2.9% in July, marking the lowest level in over three years. 

With this reduced inflation combined with a cooling jobs market, the Federal Reserve could potentially start cutting interest rates, which is positive for the UK as the BoE often considers what’s happening over the pond when considering the base rate.  

However, unless inflation and the jobs market weaken, experts believe the next UK interest rate cut won’t be until November.  

How will mortgage rates be affected?  

No change in the base rate means variable-rate mortgage holders are unaffected, which will be disappointing as August’s base rate cut did lead to rates falling, reducing monthly repayments.  

The base rate cut also resulted in mortgage lenders reducing some fixed-rate deals. 

In August, the average five-year fixed-rate mortgage rate was 4.88%, according to Rightmove – it is now 4.61%. 

However, if you have a lower loan-to-value (LTV), you may be able to access some fixed-rate mortgages with rates under 4%.  

With UK house prices hitting a two-year high in August and the potential for mortgage rates to fall further, the property market is looking more positive. 

However, more base rate reductions will be necessary to spark further mortgage rate cuts, and the BoE’s decision depends on many factors, such as inflation and swap rates.  

If you’re looking to get on the property ladder, it’s more expensive to buy a home than it used to be, and prices are expected to rise this year, especially if mortgage rates continue to ease.  

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

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?  

Savers seeking the best rates may want to act sooner rather than later. 

Savings rates peaked around the end of 2023 and have been easing since, but the base rate reduction in August encouraged some banks and building societies to cut rates.   

So, it’s a good idea to open a fixed-rate savings account while rates are still generous at 5%.  

If you’re looking for higher rates, you may want to consider investing, which can be an option if you have long-term financial goals and don’t need easy access to your cash. 

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

You can quickly match with a qualified financial adviser via Unbiased, who can help you with an investment strategy or review your existing portfolio.  

What about annuities?  

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

Rates have remained high, despite the BoE’s recent base rate cut – but it’s unclear how long the best rates will stick around. 

Annuities were one of the few financial products that benefitted from many base rate increases, so a reduction would have the opposite impact.  

Experts have stressed it’s a good time to secure an annuity as rates are high.  

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