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The Bank of England held interest rates steady at 4.75 percent on Thursday in a move that could delay further rate cuts.
Economists and traders now expect the next rate cut to come in February, although it could be as early as late next year.
The central bank's decision to hold rates keeps them at the highest level since the financial crisis.
Henry Knight, managing director at Springtide Capital Mortgage Brokers, said: “Forecasts for interest rates in 2025 suggest a downward trend, with predictions that the base rate will fall to around 3.5 per cent.
“This decline is expected to translate into lower mortgage rates, which will benefit both new buyers and those looking to refinance.”
Mortgage Rates Likely to Rise
For borrowers, it means a longer wait to switch to a cheaper rate and a potentially bumpy ride in the meantime.
Although mortgage rates depend on the Bank's base rate, they are also a product of competition and business demand between banks.
The best rate for a five-year mortgage with a 25 per cent mortgage is currently 4.18 per cent with NatWest. The best two-year deal on the same deposit is 4.29 per cent with Santander.
The best two-year-old tracker weighs in at 4.9 per cent with Halifax.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “The trend in new mortgage prices is downwards, but mortgage rates are likely to continue rising over the next three months.
“Exchanges [which are used by lenders to price mortgages] They have been gradually falling for a month, but all those drops have disappeared in the last three days.
“Only when we start receiving regular base rate cuts will the market react favorably and swap rates fall.”
The Bank's base rate remained level after it was revealed earlier in the week that inflation in November rose to 2.6 percent, above the central bank's target.
The Bank's Monetary Policy Committee voted by a majority of 6 to 3 in favor of keeping the rate at 4.75 percent. Three members preferred to reduce the bank rate by 0.25 percentage points, to 4.5 percent.
The central bank uses higher interest rates as a tool to try to control inflation, forcing households to spend more on loans rather than driving up the prices of goods.
Another pressure on inflation comes from rising wages. Wages are now growing at 5.2 per cent, up from 4.9 per cent three months ago, according to Office for National Statistics data published earlier this week.
Money market traders have pushed back their expectations for a rate cut to May if no cut comes in February.
“A palpable blow for homes”
Higher rates for longer are a blow to borrowers, said Suren Thiru, economic director at the Institute of Chartered Accountants of England and Wales, although the bigger news could be that the Bank is backing itself into a corner.
If inflation continues to rise and growth remains low (that's stagflation), it could be difficult to raise rates.
“The bank's decision to keep interest rates unchanged, although expected, will continue to be a palpable blow to households struggling with onerous mortgage bills and to businesses facing rising costs following the autumn budget.
“The split vote decision and the dovish tone of the minutes suggest that a February interest rate cut is still on the cards, although it is not yet a done deal.
“The Bank of England risks being painted into a corner by the pace of policy easing because, with inflation likely to rise, the timing of future interest rate cuts could become increasingly complex, especially if the Stagflation fears come true.
“In this context, rate setters are likely to take small steps to cut interest rates over the next year, particularly in the face of rising domestic and international inflation risks.”
Chancellor Rachel Reeves said: “I know families are still struggling with high costs.
“We want to put more money into workers' pockets, but that is only possible if inflation is stable and I fully support the Bank of England in achieving this.
“Improving living standards across the country is our number one goal, which is why I chose to protect workers' paychecks from tax rises, froze fuel taxes and increased the national living wage for three million people. “.
“In this context, rate setters are likely to take small steps to cut interest rates over the next year, particularly in the face of rising domestic and international inflation risks.”
