What impact will the interest rate being held again have on borrowing and savings?

The Bank of England recently announced that interest rates are being held again at 5.25% for the 2nd month in a row after a previous period of 14 consecutive increases between December 2021 and August 2023. The Bank of England said there were “increasing signs” that higher rates were starting to hurt the UK economy.

What impact will interest rates being held have on the Commercial Market?

Stable interest rates provide businesses with a predictable financial environment. This predictability allows them to manage their budgets more effectively, plan for capital expenses and negotiate more favourable terms with lenders which may encourage more businesses to access loans.

For example, some firms may need to access loans for expansion, investment or operational needs. This can encourage business growth and stimulate investment in commercial properties.

Stable interest rates can also make commercial real estate more attractive to investors. Real estate is often considered a relatively stable way to generate income and lower borrowing costs can improve the return on investment.

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What impact will interest rates being held have on the Residential Market?

Interest rates being held will have a similar impact on the residential market in comparison with the commercial market.

The decision to hold interest rates will bring relief to homeowners with tracker mortgages who have seen their monthly repayments get consistently more expensive. For those coming to an end of their fixed-rate deal, there will also be some hope that mortgage rate rises have halted. There is some competition back in the mortgage market and if this is the end of a run of rate rises, then lenders may have even more confidence to offer better deals.

Interest rates remaining static could also have a wider impact on the residential market. It is a sign that the residential market may be finally setting after nearly 2 years of continuously rising. This may encourage more people to enter the market due to lower or more settled mortgage rates. This can increase demand for homes, particularly among first-time buyers and those who were previously on the fence due to rising interest rates.

As with most markets, The residential market is closely linked to supply and demand. With potentially more buyers in the market, this could lead to house prices rising again. However, the rate of price increase may be more gradual and steady compared to periods of rapidly rising interest rates.

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What impact will interest rates being held have on the Savings Market?

The 14 consecutive interest rate rises since December 2021 have heavily benefitted savers. They have seen a steady increase in returns on any savings they have with the average easy access saving account paying around 5% interest. This has led to more people choosing to save money and benefit from a steady and reliable income from their savings.

However, due to high inflation levels, the average savings rate still remains below inflation at 6.7%, meaning that money is losing value in real terms.

With interest rates holding for the second month in a row, it suggests that they have potentially peaked and could start to fall in the future which may start to negatively affect the savings market.

Need to speak to a Financial expert?

Contact the Principle Finance team on 0330 107 1558 or [email protected]

As a mortgage is secured against your home, it may be repossessed if you do not keep up the mortgage repayments. This site is intended for UK residents only and the laws of England are applicable.