Interest rate pause may help borrowers, but will it settle the market?
While the latest hold in the Bank of England base rate would spare borrowers on variable rates from an immediate rise in monthly payments, brokers warn that it would not remove uncertainty from the mortgage market.
Fixed-rate pricing remains tied to swap rates, funding costs and expectations for the path of interest rates, while some borrowers are turning to trackers or split mortgage structures to manage risk.
Most borrowers still favour fixed rates, but the gap between fixed deals and the initial rates available on trackers has become more significant.
David Hollingworth (pictured top left), associate director at L&C Mortgages, noted that tracker applications had risen sharply in April, reaching a little over 14% of applications, more than three times the level recorded in March.
“The story for mortgage rates has understandably focused on the sharp spike in fixed rates since the outbreak of the Iran war,” Hollingworth said. “The threat of the rising cost of living has heightened market expectation that interest rates will have to rise or remain higher for longer.
“In recent weeks, fixed rates have begun to ease back, and there are still lenders feeding through improvements to fixed rates. Whether that will continue is far from guaranteed, as swap rates have edged higher amidst ongoing uncertainty.”
The base rate decision is only part of the advice conversation. Borrowers are weighing certainty against flexibility, particularly where tracker products come with no early repayment charges. Some are using trackers as a short-term position while they wait to see whether fixed-rate pricing improves.
Nicholas Mendes (pictured top right), mortgage technical manager at John Charcol, however, said borrowers should avoid reading too much into one Monetary Policy Committee decision or one round of lender rate cuts. Mortgage pricing, he pointed out, is still being influenced by swaps, funding costs and expectations for where rates go next, not only by the headline Bank Rate announcement.
Recent reductions from some lenders may help borrowers, but brokers caution that they do not guarantee a continued fall in pricing. Some lenders may cut further where they have room to compete, while others may hold rates or reprice quickly if funding costs rise.
Mendes advised borrowers approaching the end of a fixed deal to look early, secure a rate where possible and speak with a broker about the options available.
“In this kind of market, the better approach is often to lock in an affordable option and then keep it under review, rather than sit on the sidelines waiting for a clearer signal that may not arrive,” he said.
The uncertain outlook is also bringing renewed attention to split mortgage structures. Some lenders allow borrowers to divide a mortgage between more than one product, enabling part of the loan to be fixed while another part tracks the base rate.
“Many will be firmly in either the fixed or tracker camp, but mixing and matching products could offer the chance to hedge your bets and have the best of both worlds,” Hollingworth said. “Splitting your mortgage can help to limit the exposure to rising rates through the fixed element, whilst still capitalising on the currently lower rate of a tracker deal.
“Not all lenders will be able to help and there’s also the chance of there being two arrangement fees, so advice on the best combination of rates will be crucial.”
For borrowers, a base rate hold may bring short-term relief but not certainty. Trackers may appeal where borrowers have enough room in their budget to absorb higher payments, while fixed rates remain more suitable for those who need predictable monthly costs.
For brokers, the main task is to help clients understand the trade-off between certainty and flexibility. “A broker can help secure what is available now while still monitoring whether a better option appears before completion,” Mendes said. “That matters when lender pricing is moving quickly and the market is still reacting to each fresh piece of economic news.”
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