The Bank of England has cut interest rates from 4.5% to 4.25%. It follows two interest rate cuts in the second half of last year, and another one in February this year.
Will my mortgage get cheaper?
For the vast majority of borrowers, the answer is no: more than 7.1 million (85%) of the UK’s 8.4 million existing residential mortgages are on a fixed rate, which means their monthly repayments will stay the same.
However, the reduction will translate into lower borrowing costs for the 590,000 homeowners with a base-rate tracker mortgage – the rate they pay will fall in line with the Bank’s cut. The banking body UK Finance reckons a typical tracker-mortgage customer will see monthly payments fall by £28.97 as a result of Thursday’s decision.
The 540,000 borrowers on their lender’s standard variable rate (SVR) will have to wait and see. Although it is likely that lenders will reduce their SVRs, they are not obliged to do so and could choose to keep the rate as it is or pass on only some of the cut. Before the cut, UK Finance put the average SVR at 7.38%. It said that meant a typical saving of £13.87 a month if lenders followed the Bank’s cut in full.
Of the total number of fixed-rate mortgages, about 1.6m are due to expire in 2025. Those coming off five-year deals will face a big jump in payments when they switch to a new product.
What does it mean for new mortgage deals?
Brokers say homebuyers and those aiming to remortgage are now the beneficiaries of a mortgage price war, with lots of lenders cutting the cost of their new fixed-rate deals in recent weeks.
On Wednesday, Nationwide said it was now offering some sub-4% first-time buyer fixed rates for the first time since September 2024, and on Thursday afternoon it announced fresh reductions for new and existing customers, with rates starting from 3.84%. Other big lenders that have trimmed rates on their new deals this week include Halifax, TSB and Virgin Money.
Nicholas Mendes, the mortgage technical manager at the broker John Charcol, said he expected fixed-rate mortgage to continue getting gradually cheaper throughout 2025. By the end of the year, “we could see leading two-year fixed rates settle at about 3.5%, with five-year fixes close behind at approximately 3.6%,” he says.
But he added: “Substantial drops are unlikely unless the Bank of England base rate falls significantly to about 2.5%, which is not currently forecast.” Borrowers should not wait “for rates to collapse”, he says.
Should I go for a fixed rate or a tracker mortgage?
A fixed-rate mortgage offers the certainty of set monthly payments and is arguably the safest for those whose finances are on the tighter side, which will include many first-time buyers. However, most experts expect more interest rate cuts: on Thursday morning, the financial markets were anticipating a further three quarter-point interest rate reductions before the end of December.
As a result, some borrowers will be leaning towards a base-rate tracker so they can benefit from lower payments in future. With a tracker, the rate moves down, or up, in line with the official base rate.
However, David Hollingworth at the broker L&C Mortgages, says that as well as offering certainty, fixed rates are also typically cheaper than trackers at the moment.
How about savings?
The returns on savings are generally not explicitly tied to the Bank of England base rate, but Thursday’s reduction is likely to be passed on to many savers who have easy-access accounts and others who do not have accounts with fixed interest rates.
On Thursday morning the average easy-access savings rate was 2.78%, though the Bank’s latest move will almost certainly lead to that coming down.
The “best buy” easy-access accounts are paying a lot more than the average. Top payers include the savings and investment apps Chip and Sidekick, which at the time of writing both had accounts paying 4.76%.
Fixed-rate savings bonds involve tying up your money for between six months and five years, and typically offer some of the highest rates. Interest rates on new fixed-rate bonds have been coming down, but only very gradually. On Thursday, the average rate on a one-year fixed-rate savings deal was 4.09%, according to Moneyfacts. At the start of February it was 4.21%.
At the time of writing, the top-paying one-year fixed-rate bonds from Cynergy Bank and Tandem Bank were paying a rate of 4.55%.
