Following the last review of the year, the Monetary Policy Committee (MPC) has voted to lower the base rate to 3.75%. This is a 0.25% cut from the previous 4% rate. This is the first base rate cut since August and is now the lowest that interest rates have been since January 2023.
Will interest rates continue to come down?
This decision was widely anticipated following the bigger-than-expected drop in inflation to 3.2% from the previous inflation rate of 3.6%. Economists had predicted inflation to fall to 3.5% while the Bank of England had announced an expectation of 3.4%.
The lower inflation rate, coupled with weakness in the labour market and a stagnating economy, has eased pressure on the BoE to maintain interest rates at a higher level. The measures announced in the Autumn Budget have also paved the way for further drops in inflation. Further reductions to the base rate are, therefore, expected next year, with two cuts anticipated and a possible third.
How does this base rate cut affect mortgages?
Lenders price in anticipated changes to the base rate when setting the interest rates for their mortgage products. They do this by taking swap rates into consideration. This means that some lenders have already introduced lower prices ahead of the base rate decision. The base rate cut may, hopefully, lead to further mortgage rate reductions by other lenders.
Either way, this is good news if you’re looking for a new mortgage or are ready to remortgage. Lower borrowing costs improve affordability, which is especially useful if you’re a first-time buyer waiting to get on the property ladder.
If you have a tracker mortgage, you’ll benefit from a reduction in your mortgage rate in line with the base rate reduction, lowering your monthly payments. If you’re currently paying your lender’s standard variable rate (SVR), you may benefit from lower payments provided that your lender passes on the cut. However, they may decide to only pass on some of the reduction or possibly none at all.
Fixed-rate deals have already come down so if yours is coming to an end, it’s a good idea to lock in a new deal. You can do this up to 6 months before the end of your fixed term. If, after that, a better deal becomes available before your term expires, you can always change it. If your fixed-rate mortgage isn’t nearing the end of the initial term, you won’t be affected by this base rate cut so your mortgage payments will remain the same.
Discuss your mortgage options with our specialist advisers
Our mortgage brokers are here to help you navigate the mortgage market and find the best deal to meet your needs. Give us a call on 01322 907 000 to benefit from comparisons of deals across the market, including exclusive broker-only deals. We provide impartial advice and offer a tailored solution to your financial situation and mortgage goals.