Millions of home owners and businesses today celebrated lower mortgage and interest bills after the Bank of England cut interest rates by a quarter point to 4.25%.
The Bank’s rate setting Monetary Policy Committee (MPC) voted 5-4 to reduce the cost of borrowing for the fourth time in less than a year after similar moves in August, November and February. Interest rates are now at their lowest level since May 2023.
Two members of the MPC, chaired by Bank Governor Andrew Bailey, voted for a bigger 0.5% cut while another two preferred keeping the rate at 4.5%.
Today’s move, which was in line with City forecasts, will mean an immediate cut in monthly mortgage bills for millions of borrowers on tracker or variable rates that move in line with the Bank’s decisions. Thousands of small and medium sized businesses labouring with huge debts on variable rates will also get relief.
However, the majority of homeowners on fixed rates will see no change to their bills in the short term although headline market deals being offered by mortgage lenders are drifting below 4% in anticipation of further cuts by the Bank.
It is estimated that 1.8 million fixed rate mortgages are due to expire this year.
Rates peaked at 5.25% between August 2023 and August last year as the Bank fought to contain inflation that surged to a 40 year high of 11.1% in October 2022.
However, inflation has now dropped back to 2.6%, only slightly above the Bank’s target of 2%, while economic growth has slowed.
Thomas Pugh, economist at consulting firm RSM UK said: “We expect two more rate cuts this year, but there is clearly a significant risk of a faster pace of easing if the impact of tariffs is significant. We will get a better understanding of that after this afternoon’s trade deal announcement.
“The most interesting part of today’s decision was the vote split with two members voting for a 50bp cut and two voting for a hold. That suggests a consecutive cut in June is quite unlikely. Meanwhile the committee kept its “gradual and careful” language again suggesting it is in no rush to cut rates more quickly than previously assumed.”
The move was welcomed by lenders and brokers. Paresh Raja, CEO of specialist lender Market Financial Solutions, said: "The markets inked in this base rate cut several weeks ago, with many lenders having already dropped rates over the past fortnight.
“As a result, today's decision might be met with a somewhat muted response. But we should be careful not to take another 0.25% reduction for granted; rates are trending in the right direction and borrowers will welcome every cut.”
Tim Parkes, CEO of mortgage lenders RAW Capital Partners, said: "We are on the right path, even if the speed of travel is not fast enough for some. The base rate is now a full percentage point lower than the recent 5.25% peak we saw for much of 2023 and 2024. If indeed the base rate does continue to fall to 3.5% or even 3.25% by the end of this year, it will likely encourage many more property buyers and investors to enter the UK property market."
Dominic Agace, chief executive of estate agents Winkworth, said: "We have seen lenders cut rates across the board in expectation of this move, with many rates back in the 3 per cent range. We expect this to support activity post the stamp duty rush for the year ahead. Despite further anticipated cuts, we expect the low 3 per cent range to be the longer term landing zone for mortgage rates.
“These new lower rates and recent major trade deals showing UK is regaining its international reputation, boosted by the expected announcement today on a deal reached on US and UK tariffs. We believe sentiment will remain positive in the property market."
