The Bank of England's decision to hold interest rates at 5% was anticipated by many, yet it remains a blow to mortgage holders dealing with high borrowing costs.

For homeowners with variable or tracker rate mortgages, the Bank’s decision means monthly payments will stay the same, offering a temporary reprieve from the uncertainty of potential future rate hikes.

However, those with fixed-rate mortgages are likely to experience the lingering effects of past rate increases when they remortgage, as lenders incorporate current economic conditions and the Bank’s policies into their offers.

Alice Haine, personal finance expert at Bestinvest, said: “The decision to keep interest rates on hold may unsettle households, especially as they navigate a tight budget. While easing inflation and last month's rate cut have provided some relief from high borrowing costs, they have not entirely resolved the affordability issues faced by existing homeowners and prospective buyers.”

About 1.6 million existing borrowers have relatively cheap fixed-rate deals expiring this year.

Read more: Bank of England holds interest rate at 5%

Haine also noted that while some better mortgage rates are available, new buyers must be strategic to keep monthly repayments manageable. This might involve seeking larger deposits from family or opting for longer mortgage terms — 30, 35, or even 40 years — instead of the traditional 25-year term.

For those on tracker mortgages, relief may only come after the next Monetary Policy Committee (MPC) meeting. Meanwhile, borrowers with fixed-rate deals secured before the Bank of England's tightening cycle began will face significant repayment increases as their deals expire.

Matt Smith, mortgage expert at Rightmove, said: “We still expect two rate cuts before the end of the year, which should lead to a downward trend in mortgage rates by Christmas. However, the response from lenders may be moderate, as their funding costs are unlikely to decrease substantially, limiting the extent of rate cuts.”

Despite today's setback, experts anticipate some relief for mortgage holders. Laura Suter, director of personal finance at AJ Bell, predicted: “Interest rates are expected to end the year at 4.5%, with two successive cuts before Christmas. This could ignite further activity in the housing market, which has already seen a pickup since last month’s cut. Potential buyers may also delay their purchases, hoping for even lower rates later in the year.”

Ryan McGrath, director of second charge mortgages at Pepper Money, expressed hope that the Bank's decision will encourage lenders to lower rates ahead of an anticipated November cut. “This rate hold may be the catalyst lenders need to adjust their rates, providing more options and stock in the market for potential buyers.”

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Guy Gittens, chief executive of Foxtons group, said that since the interest rate cut in August — the first in four years — there has been an increase in buyers entering the market after strengthened mortgage approval numbers.

"While rates have been held today, this improving market momentum is only likely to strengthen further, as mortgage rates continue to trend downwards, putting the property market in very good stead for the remainder of the year," he said.

Savings and Credit Cards

In light of the Bank of England’s decision, Liz Edwards, a money expert at Finder.com, has advised savers to lock in the best available rates. “Today’s decision, while disappointing for borrowers, serves as a reminder for savers to take advantage of higher rates on fixed-rate accounts,” Edwards said.

Finder’s research revealed that eight of the 16 largest UK banks have already reduced rates on easy-access savings accounts since the Bank’s base rate cut earlier this month.

Mark Hicks, head of active savings at Hargreaves Lansdown, echoed this sentiment: “The decision to keep rates steady is positive for savers. Had a rate cut occurred, we would have seen a swift follow-through from other banks and building societies.”

Read more: What we're expecting to see in the autumn budget

For credit card holders, changes in the base rate can affect interest charges if their card’s rate is linked to it. Cardholders should receive a 30-day notice prior to any rate increases.

The cost of securing new credit has risen compared to a year ago due to higher rates. Data from Moneyfacts shows that the average credit card interest rate for September 2024 is 35.5%.

While personal loan and car financing rates are typically fixed, borrowers should verify their terms with lenders.

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