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The Bank of England (BoE) has reduced its base rate to 4.75% in a move that sees it drop below the 5% mark for the first time since June 2023.
Today’s decision from the central bank’s monetary policy committee marks the second time this year that the base rate has been cut, and the reduction of 0.25% was widely expected.
The base rate cut comes hot on the heels of the first Autumn Budget from Chancellor of the Exchequer Rachel Reeves, which the Bank of England seemingly believes has added to inflationary pressures in the immediate term. The bank’s governor Andrew Bailey, however, reassuringly noted that interest rates are likely to “continue to fall gradually from here".
Further rates cuts depend on inflation levels remaining at, or ideally below, the BoE’s 2% target, which they dropped to in the year to September.
The central bank hiking its inflation outlook could be an indication that the pace of future rates cuts could be slower than previously anticipated.
What the latest base rate cut means for mortgages
Those and tracker mortgages will see their rate drop immediately. A reduction of 0.25% to the base rate should spell savings of around £25 a month per £100,000 for homeowners with this type of mortgage.
Property owners on their lender’s standard variable rate (SVR) will likely see similar savings, as will those on other types of variable mortgage, such as discount and capped rate deals, although the exact amount the latter mortgages will fall by may vary.
Fixed-rate mortgages will see no immediate change, but if yours is due for renewal and the coming months, the deals you can fix back into could well be lower than what is available right now, due to lenders repricing their products off the back of the base rate cut.
The vast majority of mortgage lenders have already factored in a base rate of 4.75% when pricing their product ranges, as the latest base rate cut was widely expected.
Our analysis
“While the base rate dropping below 5% for the first time in over a year is a major positive for the mortgage industry, many homeowners and new mortgage applicants, future base rate cuts and the pace of mortgage pricing reductions are an unknown quantity,” said Teito director and resident mortgage expert John Tarazi.
“I’m confident that lower mortgage rates and further base rate cuts will come, but when that will happen is unclear, as the Bank of England’s latest inflation forecast suggests the Autumn Budget will cause it to rise initially. This likely means that today’s base rate reduction will be the last one we see in 2024, with a hold likely in December, at the very least.
“I think mortgage lenders will be divided with their response to today’s news. Some will certainly play it cautious and may even increase their rates slightly, while others might take a punt on the economy’s longer-term prospects being healthy, and reduce their products.
“Either way, I can see mortgage rates being influx as we head into Christmas, but there will be some favourable deals out there for many borrowers.”
John Tarazi - Mortgage Advisor & Director
