Borrowers looking to move to or take out a new fixed rate, in the meantime, are being urged to take advice from a broker amid expectations of further rate cuts in 2025.
Today’s decision will not have come as a surprise – as a cut to rates had been forecast as a ‘certainty’. The nine members of the BoE’s Monetary Policy Committee (MPC) voted 7-2 in favour of the 0.25% reduction from 4.75% to 4.5%. The other two members voted to reduce the base rate by 0.5%.
Indeed, Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said the decisive vote in favour of a cut meant consumers could potentially get further respite from the surge in borrowing costs.
She added: “The latest interest rate decision will certainly deliver the cheer many households are hankering after this winter, particularly for those whose budgets are still in recovery mode from the post-pandemic cost-of-living and borrowing crises.”
Frances Haque, chief economist at Santander UK, said borrowers could expect three more cuts this year.
“The next,” she said, “to come in May, allowing the Bank of England to strike a balance between containing inflation, while boosting economic growth and, with that, supporting household confidence and the mortgage market.”
The reduction to interest rates comes amid growing concerns over slow economic growth and it is hoped the easing of borrowing costs will provide a much-needed boost to the economy.
Nicholas Mendes, mortgage technical manager at John Charcol, said: “This decision marks a shift in the Bank of England’s priorities, placing more emphasis on supporting the economy rather than solely focusing on inflation.
“The challenge now is to strike the right balance providing the necessary stimulus without allowing inflation to creep back up, particularly as global economic uncertainty remains high.
“The Bank’s next moves will depend on how wage growth, productivity, and broader economic conditions evolve in the coming months.”
How will today’s 0.25% cut impact your mortgage?
Today’s cut to interest rates had been widely expected and this, along with the fact swap rates have fallen, meant some lenders had begun to cut their fixed rates following a period in which they had been increasing them.
Even so, for anyone considering taking out a mortgage there will still be some debate over whether you should opt for a fixed, variable or tracker rate.
Here’s how today’s decision will impact you…
…if you are on a tracker mortgage
Following today’s cut, those borrowers who are on tracker mortgages should soon see their rate reduced. Be aware, it may take a month or so for this cut to be passed on depending on which lender you have your mortgage with.
…if you are on a fixed-rate mortgage
If you are currently locked into a fixed rate deal, there will be no change to your rate. Keep an eye on future rate decisions, however, so you are prepared for when your deal ends and you are looking for a new product.
…if you are about to take out a mortgage
For those about to remortgage or buy a home, the advice is to speak to a broker about the best solution for your needs, especially in this current environment.
It is thought there are 1.8 million mortgage borrowers who are on five-year deals with below 2% interest rates which are due to end in 2025. These customers will all be looking to transition to new deals with much higher rates than they are used to.
Many of those moving house may also be in for repayment hikes too, if they have also been on fixed-rate deals for longer than two years.
For first-time buyers the new rate environment may not come as quite such a shock, but affordability may still be a key challenge, even with today’s 0.25% cut.
Mendes said: “For borrowers evaluating their options, the choice between fixed and variable rates remains key.
“A fixed-rate mortgage provides stability, locking in payments for a set period, whereas a variable-rate mortgage tracks the Bank of England’s base rate, offering potential savings if rates decline further.
“For those comfortable with a slightly higher initial rate, a shorter-term fixed deal or a tracker mortgage offers flexibility, allowing a switch should rates fall further. Conversely, a longer-term fix provides certainty and protection against potential market volatility.”
He added: “It remains critical for borrowers nearing the end of a fixed-rate term to act promptly rather than waiting indefinitely for lower rates. Market sentiment and global economic shifts can alter conditions rapidly.”
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