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Should you fix your mortgage and savings now as Bank of England holds base rate at 5.25%? Your options explained

Savers should consider locking in a top fixed rate now as the Bank of England has held the base rate at 5.25% for the second time in a row. For mortgage borrowers, the situation is less clear-cut and will depend on what type of mortgage you have and when your deal ends. 

The base rate is used by the central bank to charge other banks and lenders when they borrow money – and so it influences what borrowers pay and what savers earn. It was increased to 5.25% in August, its fourteenth consecutive rise, though it remained at this level in September after lower than expected inflation figures.

Below we run through your savings and mortgage options below following the decision to once more hold the base rate at its current level.

For more guidance and tools to help you get the best deal on your mortgage, see our Homes and Mortgages Hub. If you're a saver, you can find a full round-up of the best rates in our Top savings accounts guide.

Mortgages: Interest rates on fixed deals have dropped, but not dramatically

Since the base rate was held in September, interest rates on fixed deals have been dropping steadily. As the table below shows, in August, the top two and five-year fixes were 5.77% and 5.22% respectively. Earlier this week, these were down to 5.14% and 4.64%.

HSBC and Barclays have reduced their fixed rates this week, and there could be further cuts from lenders, but these aren't expected to be dramatic. 

Ray Boulger, a mortgage expert from broker John Charcol, told us that fixed rates could continue to fall following cuts to gilt yields and swap rates – long-term interest rate predictors, which affect the cost of fixed mortgage deals. 

He said: "The Monetary Policy Committee's decision should underpin the current lower gilt yields and leave scope for modest further cuts. A month ago I thought is unlikely we would see a 4.5% five-year fix this year but with the lowest rate currently 4.64% that now looks very likely, along with a sub 5% two-year fix." 

Mr Boulger added that fewer homes being purchased – around 20% lower than last year – could also result in fixed rate cuts with lenders keen to attract business. 

The direction of fixed-rate mortgages (1)

Loan-to-value Cheap two-year fix Cheap five-year fix Cheap 10-year fix
Aug Sep Oct Aug Sep Oct Aug Sep Oct
60% 5.77% 5.39% 5.14% 5.22% 4.93% 4.64% 5.04% 4.94% 4.94%
75% 5.82% 5.39% 5.24% 5.23% 4.94% 4.74% 5.04% 4.94% 4.94%
90% 6.13% 5.85% 5.54% 5.51% 5.37% 5.11% 5.54% 5.34% 5.38%

(1) Purchase rates based on a £200,000 property. Correct as of 31 October 2023.

Should I get a fixed mortgage?

Most mortgage holders in the UK are on a fixed rate, meaning that the interest they pay won't change with the base rate. If your fixed mortgage term is coming to an end, what you should do now depends on when your term ends:

  • Current deal ending in the next six months? Consider locking in a fixed deal now. Locking in a fixed deal now will give you insurance against any rate rises, plus the flexibility to switch to a cheaper deal if one launches before your current rate finishes. Fixed deals also give you price certainty (see the difference between fixed and variable mortgages).
  • Current deal ending soon? You may want to consider a tracker. Here, there's more of an argument for moving onto a tracker mortgage, even if it's temporarily. You could get a tracker that doesn't come with early repayment charges then, if rates come down over the coming months, move onto a fixed deal penalty-free at a time of your choosing.

    Trackers have a variable rate of interest pegged to the base rate, meaning that what you pay can change. The base rate is thought to be near its peak – it's not expected to rise above 5.75% – so trackers might not get much more expensive than they are now (but there are no guarantees).

If you're on your lender's standard rate, a new deal could save you £1,000s

With standard variable rates (SVRs), the interest you pay can change at any time, which tends to happen when the base rate rises. This means that SVRs are far more expensive now as the base rate has risen 14 times since December 2021; two years ago, a typical SVR was 4%, in early October 2023, the average SVR was 8.18% (up from 8.09% in September 2023). 

If you're on your lender's SVR, switching to a fixed deal can give you price certainty. If you're waiting for fixed rates to drop, opting for a tracker without any early repayment charge could mean you're paying a better rate but still have the flexibility to leave and switch to a fix later on.

It's worth checking product transfer rates too

When you begin the hunt for a new mortgage, you'll have two options:

  1. You could get a new deal from your existing lender (known as a 'product transfer'). When it comes to a product transfer, the vast majority of lenders let you lock in a new rate up to six months in advance. Product transfers tend to be quicker than remortgaging and often require less paperwork. The rates are very competitive at present and there are typically fewer fees involved compared to remortgaging.

  2. You could get a new deal from a different lender entirely (known as 'remortgaging'). If you remortgage, most lenders let you lock in a rate at least three months in advance, with many actually letting you secure a deal up to six months early. However, this process can involve more fees and longer, more thorough checks compared to product transfers.

We've got full details on the pros and cons of locking in a product transfer or remortgage early – including whether you'd be able to ditch it penalty-free – in our Getting ready to remortgage guide.

Struggling with your mortgage? See our What to do if you're struggling with your mortgage guide or – if you've already fallen behind on your mortgage repayments – our Mortgage arrears guide.

Savings: Rates have risen since the start of the year and may have peaked

Savings rates had steadily increased as the base rate was rising, but now that it's been held for the second time in a row, the top rates may be behind us – though as ever, no-one has a crystal ball. 

The graph below shows how the top rates have risen since the start of the year:

As shown in the graph below, the top rate on a one-year fix hit 6.2% in August after the base rate increased to 5.25%. Since this deal was pulled in early October, fixed rates have either fallen or stayed the same across the board.

If you're a saver, it may be worth getting a fix now in case rates drop

The first step to maximising your savings is to check what they're paying – if you're earning less than the top easy-access rate, which is currently 5.2%, you should consider switching.

If you can afford to lock your money away for at least a year, you may also want to consider doing so now. founder, Martin Lewis, warned savers to lock-in fixed deals now following last month's base rate hold. 

You usually have between a week and a month from opening a savings account and funding it, so there's time to change your mind before you lock away your savings.

See our daily-updated Top savings guide for the latest rates, including up to 5.2% easy-access and 6.05% fixed.

Earning a lot of interest on savings? It's worth considering a cash ISA

For the past two years, it's made more sense to opt for savings accounts over Cash ISAs because interest rates were rising and savings usually beat cash ISAs on rates. However, if you've made a considerable amount of interest on your savings and you're starting to pay tax on it, it may be worth putting that money in a cash ISA instead, particularly as rates could begin to fall. 

You can earn £1,000 tax-free interest a year if you're a basic rate tax payer, or £500 if you're a top-rate tax payer. So if you're going to pay tax on savings, open a cash ISA first and then look at normal savings afterwards. For more information and the top rates, see our Top cash ISAs guide.

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