The Bank of England has reduced the base rate – it’s the first time the rate has changed since August 2023 and it’s an encouraging sign for homebuyers, home movers and anyone who needs to remortgage.
We’re pleased to share some good news. The Bank of England has today chosen to cut the base rate from 5.25% to 5%. This is the first time the rate has changed since last year.
The base rate has remained at 5.25% since August 2023, and this is the first rate cut since 2020, so this reduction is significant and will be a boost to the property market.
Between December 2021 and August 2023, the base rate increased consistently.
Why did the base rate go up originally?
The Bank of England originally increased the rate to combat rising inflation, aiming to bring it down and keep it low. Higher interest rates reduce spending. When spending falls, price rises slow down, which in turn reduces inflation.
Consumer Prices Index (CPI) inflation, which relates to the prices of a typical basket of household goods and services, is now at the Bank’s target level of 2%. However, services inflation, which covers hospitality and education, remains slightly higher than the Bank would like at 5.7%.
So, what does a lower base rate mean for you? While it’s not a huge drop, it’s certainly a step in the right direction.
What does this mean for your mortgage?
ℹ️ If you’re on a tracker rate mortgage, which moves in line with interest rates, your monthly payments should come down.
ℹ️ If you’re on a standard variable-rate mortgage, your monthly payments may well be reduced, depending on your lender.
ℹ️ If you’re on a fixed-rate deal, your monthly payments will stay the same until the fixed term ends.
Mortgage interest rates have been coming down lately, with big lenders like Santander and NatWest announcing the reduction of remortgage rates on two and five-year deals from August. Accord, the specialist lending arm of Yorkshire Building Society, has reduced some residential fixed rates for existing customers.
Increased competition
Overall, the base rate drop could increase competition among lenders, which can benefit borrowers. It should also restore some confidence among buyers, which means competition for properties could also increase, and asking prices could go up.
Swap rates (the amount that lenders pay to financial institutions to obtain stable funding) have been gently coming down, and mortgage rates are expected to continue gradually reducing.