The Bank of England has announced its first Base Rate cut of 2025, reducing it by 0.25% to 4.5%. The cut marks a significant shift after the rate was held at 4.75% in December, following two reductions in 2024.
However, what does this mean for homeowners, buyers, and the mortgage market?
How Have Mortgage Rates Been Affected?
Mortgage rates have been fluctuating in recent weeks. Some lenders have been reducing their rates, while others have seen slight increases. However, over the past week, the average rate for a 2-year fixed mortgage has fallen by 0.02% to 5%, and the average 5-year fixed rate now sits at 4.79%.
With this Base Rate cut, there’s potential for lenders to make further reductions in the coming months. However, external factors such as global economic conditions and inflationary pressures could influence how quickly mortgage rates adjust.
What Does the Base Rate Cut Mean for Your Mortgage?
Fixed-Rate Mortgages
If you’re on a fixed-rate mortgage, this rate cut won’t immediately affect your monthly payments. Your rate will stay the same until your fixed term ends, at which point you’ll need to look at a new deal. If you’re nearing the end of your fixed term, now is a good time to start exploring your options and locking in a new rate.
Tracker and Variable-Rate Mortgages
If you’re on a tracker mortgage or a variable-rate mortgage that follows Base Rate movements, your monthly payments will likely decrease. Lenders typically pass on reductions within a month or two, so you should see a difference soon.
Remortgaging and Moving Home
For those planning to remortgage or move home, this cut could be good news. Lower rates may improve affordability, especially as lenders adjust their stress test calculations. However, it’s essential to shop around for the best deal, as rates can vary significantly between lenders.
What About the Mortgage Charter?
The Mortgage Charter, introduced in July 2023, provides some protection for borrowers, especially those struggling with repayments. It allows homeowners to secure a new mortgage deal up to six months before their current deal ends, giving them more flexibility to plan ahead.
If you’re nearing the end of your fixed-rate term, this could be a great opportunity to lock in a new deal before rates potentially rise again. You also have the option to remortgage with a different lender, though this process can take longer due to affordability checks, legal processes, and property valuations.
Could Mortgage Affordability Improve?
One of the biggest challenges in recent years has been mortgage affordability. Lenders use stress tests to assess whether borrowers could handle a significant jump in repayments. These stress tests are linked to Standard Variable Rates (SVRs), which are currently averaging around 7.73%.
If lenders lower their SVRs following the Base Rate cut, stress-tested amounts could be reduced, making mortgages more accessible to some buyers. This could be particularly beneficial for first-time buyers and those looking to borrow at higher loan-to-value ratios.
The Bank of England will meet again on 20 March 2025 to decide on the next move for interest rates. While we are now on a downward trend, it is highly unlikely that rates will return to the historic lows seen in 2021.
Conclusion
This Base Rate cut is a positive step for borrowers, signalling a shift towards lower interest rates. While the impact on mortgage rates won’t be immediate, the trend suggests a more stable and potentially more affordable mortgage market in the coming months.
If you’re on a fixed-rate mortgage, now is a good time to start planning for your next deal. If you’re on a tracker or variable-rate mortgage, you should see some reduction in your monthly payments soon. And if you’re thinking of buying a home or remortgaging, keeping an eye on rate changes will help you make the most informed decision.
As always, speaking with a mortgage advisor can help you navigate the options available and secure the best deal for your circumstances.
This article is purely intended as a helpful guide and not professional advice. Potential buyers should consult an independent professional prior to purchasing any land, property, or investment vehicle.
