The Bank of England has reduced the base rate by 0.25%, bringing it to 4.75% – the second cut this year following a previous reduction in August. With inflation now at 1.7% (below the 2% target), this adjustment aligns with efforts to stabilize the economy. This rate cut had been widely anticipated by markets, as holding rates steady might have negatively impacted businesses and households down the line.
Mortgage rates have shown mixed reactions, with some lenders raising rates and others reducing them. Recent fluctuations in swap rates (the underlying costs of mortgages for lenders) have driven these changes, with many lenders repricing their products to stay competitive.
For current mortgage holders, the impact of this change depends on your mortgage type. Fixed-rate mortgages won’t change until the end of their term, while tracker or variable rate mortgages linked to the base rate should see a decrease in monthly payments. The recently introduced Mortgage Charter could also provide relief to borrowers nearing the end of their fixed-rate deals, allowing them to secure a new rate up to six months before their current term ends. Starting the search early is advised to avoid a switch to the typically higher Standard Variable Rate (SVR), which averages 8.01%.
The base rate reduction might also improve mortgage affordability, as many lenders’ stress tests are tied to their SVRs, plus an additional margin. A lower SVR could mean that affordability checks become slightly less stringent.
Looking ahead, the Bank of England’s Monetary Policy Committee will meet again in December, and while further reductions are expected in 2025, significant drops are unlikely in the near term. For anyone considering a new mortgage or remortgage, now may be a good time to explore options. At Adam Hayes Estate Agents, our team is here to guide you through these changes and help you make informed choices.
