The Bank of England has made its third rate cut in six months, a welcome surprise to many. In November last year, we saw a rise in inflation, which subsequently saw an increase in the base rate of interest, a move we weren’t anticipating but one that inevitably was made to protect the UK economy. Today, however, we have seen a drop in interest rates and a rise in positivity as we see the impact of this decision hopefully spread into our cost of living, including mortgage rates.
Let’s take a look at the Bank’s decision and what that means for interest and mortgage rates.
What Does This Cut to Base Rate of Interest Mean?
Toward the latter part of 2024, we saw a slight rise in inflation to 2.5% from its target of 2% that we had finally reached, along with a sense of relief at what that meant for our cost of living. However, we didn’t anticipate this rise in inflation, which meant that in December, the Bank held interest rates at 4.75%.
On 6th February 2025 however, the decision was made, with the help of the Monetary Policy Committee (MPC), to cut the base rate of interest by 0.25%, down to 4.5%. This shows that although inflation remains above its 2% target still, inflation within the UK is broadly under control. This will hopefully create confidence which should seep out into the likes of our mortgage providers.
Will There be Further Rate Cuts in 2025?
This is a popular debate among market professionals at present, with the likes of Goldman Sachs analysts stating that the Bank could well cut rates as many as six times before Spring 2026 and a FactSet consensus concluding that a further three 0.25% cuts will be due this year.
One thing for certain is the amount of uncertainty around interest rates. All future predictions preclude that the figure will continue on a down trajectory, but they vary by degree. For homeowners, this may make mortgage rates cheaper but there are many fixed-rate customers whose term will come to an end this year, meaning that when they switch, they will still move onto an overall higher interest rate than in previous years.
What Impact Will This Cut Have on Mortgages?
On the whole, this cut to interest rates is a welcome boost for mortgage holders, especially those on standard variable rate (SVR) and tracker mortgages, as they will see the immediate benefit in reduction. Those on fixed-rate mortgages will see no change to their payments, as your monthly repayment amount was decided at the time you took out the loan and will remain for the timeframe you decided. When it comes to remortgaging, however, your interest rate will be lower than if you took your mortgage out 2 years ago, however, rates are still high. A note also for those on SVR mortgages, is that even though the base rate of interest has decreased, it is still up to the lender to decide where to base their interest rate. They don’t have to follow the Bank of England’s rate, whereas a tracker mortgage does.
Looking to Find Your First Mortgage or Remortgage? Here’s What You Can Do.
The next Bank of England interest rate meeting is due to take place on Thursday 20th March, until then we won’t know for sure which direction interest rates will go. There are a few things we advise you to do to give you the best chance at reducing your monthly repayments when the time comes. These are:
- Work to improve your credit score.
- Build up as big a deposit as possible if moving or purchasing for the first time.
- Think about your loan term, are you able to lengthen it to reduce monthly payments?
- Understand your debt-to-income ratio, can you reduce it?
- Explore different mortgage types and compare lenders with the help of an independent mortgage advisor in Manchester.
Your Expert Mortgage Advisor in Manchester: We’re Here to Help.
The UK’s economy is volatile at present, which means trying to navigate the mortgage market on your own can be overwhelming and stressful. We are here to take the stress out of the situation for you, with our team of professional mortgage brokers in Manchester.
At TaylorMade, we have a team of professionals who have a wealth of knowledge and experience in the mortgage market. We have the ability to scour hundreds of lenders so you don’t have to, meaning that you can sit back safe in the knowledge that we will find the best deals on the market today.
If you’re worried about how your monthly payments will be affected or where to start with remortgaging, contact us today, your expert mortgage brokers in Manchester, also operating throughout the UK, to see how we can help you.
