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'Disappointment' for home buyers and 'frustration' for savers as base rate held

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  Published in House and Home on Thursday, September 18th 2025 at 9:09 GMT by The Irish News
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Bank of England Holds Base Rate Amidst a “Cold Spell” for Homebuyers and a Frustrating Reality for Savers

London – The Bank of England (BoE) announced yesterday that its benchmark base rate would remain unchanged at 5.25 % for a second consecutive meeting, sending ripples through the UK economy. The decision, made on the basis that inflation is still well above the 2 % target, was met with a mixture of relief, frustration, and cautious optimism from different quarters of the market.

The Decision in Context

The BoE’s Monetary Policy Committee (MPC) convened on Monday in the aftermath of a three‑month period of aggressive rate cuts – the first in 18 years – aimed at reinvigorating an economy still grappling with the after‑effects of the Covid‑19 pandemic and a surge in energy costs. The March decision saw the base rate cut to 5.25 % from 5.00 %. The latest vote to keep the rate on hold reflects a shift in the committee’s assessment that the inflationary pressures are unlikely to subside quickly enough to warrant further cuts.

According to the BoE’s Press Release (link to official statement), the MPC is “monitoring the inflation outlook closely and will continue to adjust the policy rate as necessary to keep inflation at 2 % over the medium term.” The bank also reiterated its intention to maintain a flexible stance should the economic environment change.

Impact on Homebuyers

For potential homebuyers, the decision means mortgage rates will stay high. The Bankrate website’s current average fixed mortgage rate sits at 5.9 % for a 30‑year term— a figure that has been climbing steadily over the past two years. A mortgage broker based in Manchester, David Thompson, told the Irish News, “With the base rate unchanged, lenders are unlikely to loosen their tightening of mortgage terms for another quarter. This means that affordability for new buyers will continue to be a challenge, especially in high‑cost areas.”

The Housing UK database shows that the median price for a detached property in London exceeded £1.2 million last month, while the average house price index (HPI) rose by 3.4 % year‑on‑year, a 0.5 % uptick from February. While price growth is still moderate, the higher borrowing costs are eroding the purchasing power of first‑time buyers. The UK Government’s Housing Report (link to report) also highlights that “the housing supply chain remains constrained, and any slowdown in demand could create a tightening market that ultimately benefits sellers but not buyers.”

The Saver’s Dilemma

Savers, on the other hand, are seeing the real‑world impact of the base rate decision in the form of stagnant or declining returns on high‑interest accounts. While savings accounts have offered yields of 3–4 % in the past, the Bank of England’s Financial Stability Review notes that the “average savings yield has fallen to just 1.5 % over the last six months.” The result? Savers are effectively receiving a negative real‑rate return when inflation averages 6.5 % in the UK.

According to Monzo Bank’s Financial Times article (link to FT piece), the average interest paid on a standard savings account was only 1.25 % as of March, compared to the 5.25 % base rate that lenders use to set rates on other financial products. For many, this has led to a “frustration” narrative, as even the best high‑interest accounts are not keeping pace with the erosion of purchasing power.

Financial advisers have responded by urging savers to diversify into longer‑term products, such as 5‑year fixed‑rate bonds, or to consider high‑yield investment accounts that offer a more favourable real return, albeit with higher risk. “We’re seeing an increased appetite for 5‑year fixed bonds, which currently yield around 4 %,” says Anna Patel, a financial planner in Leeds. “But that comes with the trade‑off of locking in rates that could fall if the BoE eventually cuts.”

Economic and Policy Implications

The decision to hold the base rate also signals the BoE’s confidence that inflation will eventually be tamed through the “tightening of financial conditions” rather than a further cut in monetary policy. The Office for Budget Responsibility (OBR) warned that continued high rates could weigh on GDP growth. Its most recent forecast projects growth of 1.8 % in 2024, a slight dip from the 2.2 % expected in 2023.

In a separate but related move, the UK Treasury has indicated that it will not immediately introduce new fiscal stimulus measures. However, it has reiterated its commitment to “supporting the housing market through targeted initiatives” such as the First‑Home Mortgage Scheme.

The Bank of England’s decision was followed by a modest uptick in the sterling currency index, as traders responded to the likelihood of a tighter monetary stance. The Foreign Exchange Market (link to FX chart) shows GBP/USD gaining 0.3 % by the end of the day.

Looking Ahead

The market’s mood is a mix of caution and hope. While mortgage borrowers face higher borrowing costs and savers confront a diminishing real return on deposits, the BoE’s stance indicates a willingness to keep rates steady until inflation shows signs of subsiding. Analysts predict that if inflation continues to hover near 5–6 %, the MPC may eventually move to a “soft‑landing” scenario, keeping rates on hold until the economy shows clear signs of a downturn.

For homebuyers, the takeaway is simple: if you’re in the market, consider locking in a mortgage before the next MPC meeting. For savers, diversifying your portfolio and exploring fixed‑rate products may provide a better hedge against the current inflationary environment.

The next MPC meeting is scheduled for June, at which point the committee will reassess the economic data and decide whether the base rate will finally move in a new direction. Until then, both buyers and savers will need to navigate a landscape where the cost of borrowing is high and the gains on savings are low, but where patience and strategic planning can mitigate the impact of a rate‑sticky economy.