Mortgage holders with deals expiring this year are facing a fresh headache after the Bank of England chief warned that interest rate cuts are “shrouded in uncertainty” due to the global economic situation.
The Bank’s Governor, Andrew Bailey, blamed the “unpredictable” global economic situation and the US-China trade war.
Mortgage rates tend to go down when financial markets expect interest rates to fall. Though the Bank cut rates to 4.25 per cent last month – the fourth reduction in a year – it’s unclear how many more cuts there will be in 2025.
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Some forecasters now think there could be just one more rate cut in 2025, though others expect more than this.
Appearing before the Treasury Committee, Bailey told MPs: “I think the path remains downwards, but how far and how quickly is now shrouded in a lot more uncertainty, frankly.”
“We’ve added the word ‘unpredictable’ to ‘uncertain’ because of the sheer nature of what we’re dealing with.”
His comments underline how difficult it is to predict the future path of mortgage rates, according to experts.
Aaron Strutt, product and communications director at Trinity Financial, said: “Nobody knows exactly what will happen with mortgages rates. Often rates are predicted to come down and they go up or vice versa.
“It’s very tricky to predict what will happen, we expect rates to go down this year but we don’t know.”
Earlier in spring, mortgage rates had been falling after Donald Trump’s tariff policies led experts to predict interest rates would fall rapidly, to limit damage to the economy.
But high inflation figures last month prompted somewhat of a turnaround, and some lenders have since upped their rates.
There have also been multiple twists and turns on the US President’s tariffs, with some being delayed or withdrawn, and a court block, which was then appealed.
Overall, 1.6 million households have mortgages expiring throughout the course of 2025, and the lack of clarity about where rates could end up will create uncertainty for them.
Even small fluctuations in rates can make mortgage costs more expensive.
On a 30-year term, a difference of just 0.25 percentage points in mortgage rates could cost a homeowner an extra £430 a year.
In other comments made before the committee, Bailey told MPs that the tariff war was “negative for world growth and activity”.
“It obviously increases uncertainty… and one impact of that is it tends to cause delays and putting off of investment decisions, because they are typically a once-only, irreversible decision.”
The relationship between the US and China is at “the centre” of global trade tensions and is a “genuine concern”, Bailey said.
The Bank chief also said the recent trade agreement struck between the UK and the US was “in the circumstances, a good thing”, but added: “It still leaves the average tariff level higher than it was pre all this starting, and that’s important to bear in mind.”
His comments came after UK economic forecasts were downgraded for the next two years by the Organisation of Economic Co-operation and Development (OECD).
Economists from the influential body cautioned that the global outlook is “becoming increasingly challenging”.
In the UK, the economy is expected to grow by 1.3 per cent this year, with the OECD cutting its previous forecast of 1.4 per cent.
It also reduced its prediction for 2026 from 1.2 per cent in its March report to 1 per cent.
The OECD also highlighted that substantial debt payments will continue to weigh on the UK’s state finances and “push up public debt”.
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