The Bank of England has this week reduced the base rate from 4.75% to 4.5%, marking the first rate cut of 2025 after holding it in December. This move follows a period of sustained high rates aimed at curbing inflation, and while the reduction is modest, it signals a potential shift in monetary policy towards a more borrower-friendly environment.
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With interest rates influencing mortgage costs, this change could impact homeowners, buyers, and sellers in different ways. Whether you are currently on a fixed-rate mortgage, a tracker, or looking to re-mortgage, it’s worth understanding how this adjustment could affect your property plans.
What does the base rate cut mean for mortgage rates?
Mortgage rates are influenced by the base rate, but not all borrowers will see immediate changes. Those on fixed-rate mortgages won’t see a difference in their payments until they re-mortgage, while tracker mortgages and some variable-rate deals will likely see a reduction in monthly payments.
Lenders have been adjusting rates in recent months in anticipation of base rate cuts. Some are now reviewing their Standard Variable Rates (SVRs), but there’s no guarantee that all will pass on the full reduction.
Will new mortgage deals become more competitive?
Fixed-rate mortgage deals have been gradually improving, with some lenders recently lowering rates across different deposit levels. Buyers with higher deposits tend to benefit the most from reductions. While this base rate cut was expected, the possibility of further reductions in 2025 could encourage lenders to introduce more competitive fixed-rate deals in the coming weeks.
How does this affect affordability for buyers?
Lower interest rates can improve mortgage affordability by reducing stress test thresholds. Lenders calculate affordability based on worst-case scenarios, typically adding a percentage to their Standard Variable Rate. If SVRs fall in line with the base rate cut, more buyers may qualify for mortgages, potentially increasing demand in the housing market.
What should homeowners and buyers do next?
- If you’re on a fixed-rate mortgage: Your payments won’t change until your deal ends, but now is a good time to review your re-mortgage options.
- If you’re on a tracker or variable rate mortgage: You may see an automatic reduction in your monthly payments. Check with your lender for details.
- If you’re planning to buy a home: Speak to a mortgage broker to explore the latest deals and secure a competitive rate. Getting a Mortgage in Principle puts you in a desirable position for sellers to proceed with.
Looking ahead: what’s next for mortgage rates?
The Bank of England’s next interest rate decision is scheduled for March 2025. While further cuts are possible, mortgage rates will also be influenced by wider economic factors. Buyers and homeowners should stay informed and review their mortgage options regularly.
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2025 could be the perfect time to make your move. With increased buyer demand, falling mortgage rates, and a steady rise in property prices, the market is set to work in your favour. Contact us today for a free property valuation and let us help you set the right price and strategy to make the most of this dynamic market.
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