The 0.25% cut to the Base Rate had been largely expected, even though Chancellor Rachel Reeves’ Budget last week had cast a slight shadow of doubt.
The nine-member Monetary Policy Committee at the Bank of England (BoE) voted eight to one in favour of the cut, which comes after inflation fell below its target of 1.7%.
Borrowers with tracker mortgages, and potentially those on other variable rates, will see a reduction in their repayment. Sarah Thompson, managing director of Mortgage Scout, said: “The Bank of England’s base rate cut to 4.75% brings potential for more affordable mortgage options. For those on variable rates, this change could mean around £20 in monthly savings”
However, those looking for fixed rate deals are unlikely to see a big difference.
This is because lenders will have already priced in today’s base rate cut to their mortgage products in the weeks leading up to the decision.
In fact, lenders are now starting to increase their rates as forecasts suggest today’s Base Rate cut is likely to be the last we will see this year.
Nicholas Mendes, mortgage technical manager at John Charcol, explained: “Labour’s Budget last Wednesday introduced various tax increases, but bond markets reacted negatively when government debt levels were revealed the next day. Since 30 October, gilt yields have risen sharply, increasing UK government borrowing costs.
“Markets are now concerned that increased government spending could add inflationary pressure, potentially prompting the Bank of England to slow the pace of future rate cuts.”
He added: “Mortgage rates are influenced by a variety of factors beyond the Bank Rate, so a drop in the Bank Rate doesn’t necessarily result in an immediate reduction in mortgage rates across the board.
“When setting their rates, lenders take multiple elements into account, including their service levels, swap rates, and overall market conditions.
“A significant factor for lenders when pricing mortgage rates is the swap rate. Swaps are the rates at which lenders exchange fixed interest payments for variable ones to manage the risks of long-term borrowing.
“These swap rates often move in line with expected changes to the Bank Rate, meaning that anticipated reductions are typically ‘priced in’ well before any official Bank Rate cut.
“Therefore, when the Bank Rate is finally lowered, mortgage rates might stay the same or even rise if other factors, such as funding costs or risk assessments, shift unfavourably.”
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