The Bank of England (BoE) announced on Thursday its decision to hold interest rates at 3.75 per cent, following four cuts across 2025. This marks the lowest level in three years.
Recent votes have been tight affairs, with the nine-member committee swinging 5-4 or 4-5 to cut or hold each time. However, on 19 March there was a unanimous 9-0 vote, reflecting how the Iran war had put soaring energy costs and rising inflation back on the agenda for Britain. April's vote was similar, with an 8-1 outcome.
There is an expectation that soaring oil prices will now lead to renewed inflation in the second half of 2026. Here is a brief rundown of what the current interest rate might mean for you.
What does the interest rate mean for mortgages?
Broadly speaking, as increasing interest rates over the last few years have meant mortgage repayments going up, the reverse also holds true: lower rates mean lower repayments. However, there are several important points to note.
Firstly, it is only the interest part of repayments that should change; your capital repayments will naturally decrease the more you pay off your mortgage. Secondly, the bank rate is not necessarily the rate you are charged by your lender. Banks base their rates on the BoE rate but they do not have to be identical.
More than half a million people have a mortgage that tracks the BoE interest rate, and those would see an immediate change in the event of any rise or cut. Far more people have fixed-term deals, which expire after perhaps two years or up to five years, and need renegotiating. Almost two million homeowners are expected to seek renewed deals in 2026.
If you have a fixed-term mortgage plan, you will not see a change in repayments until that term ends and you start a new one. However, if you have already finished and moved onto a standard variable rate deal, you might see a change in your repayments.
New mortgage products tend to be based on swap rates – market agreements based on future expectations of interest rate movements – rather than the current bank rate. This is why many lenders raised their mortgage deals to make them more expensive across March. Some have since fallen again, though not back to previous levels.
What about savings accounts?
If you have money in a savings account, it is the other side of the seesaw: rates going down mean you earn less interest; up means you get more. As there has been a fierce battle among banks and building societies for customers, it is still possible to get good deals if you are happy to lock in money for a fixed period or contribute regular amounts. Several are offering far more than 4 per cent even in easy access accounts.
There are always terms and conditions to be met, so ensure any accounts you open suit your circumstances. However, the opportunity still remains to save and earn money at a better rate than inflation, which currently sits around 3.3 per cent. Be aware of the amount of interest you can earn without being taxed. If your savings account interest rate is not fixed, banks can always change the rate you get up or down.
A tax-efficient way of saving is to use a cash ISA, where everyone currently has a £20,000 personal allowance each year. This will drop to £12,000 in April next year, with the other £8,000 reserved for tax-free investing.
Bills and repayments
Credit card repayments and other types of personal loans are also affected by interest rates, as the amount charged for borrowing could be altered. For credit card users, especially those using buy now, pay later deals, it is important to pay off the full amount each month if possible to avoid interest being charged at all. Depending on your circumstances and account type, they can be one of the more costly ways to borrow.
Again, it may not be immediate that lenders alter their rates after a base rate change, but get in touch with them to assess your options if you feel your repayments could or should be lower. When it comes to energy bills, they are likely set to see increases from summer when the next energy price cap comes into effect, as a direct consequence of the war in Iran sending up wholesale prices in gas and oil.
