| Base rate reduced by the Bank of England |
| The base rate was reduced to 4.5% this week, marking its lowest level in over 18 months. This development may present more favourable conditions for buyers considering investment opportunities or purchasing a new home. |
Bank of England’s interest rate outlook
The Bank of England (BoE), the country’s central bank, sets the base interest rate which influences the cost of borrowing for other financial institutions and ultimately affects consumers and businesses.
The BoE’s mandate, set by the Government, is to maintain an annual growth target of 2% for the Consumer Prices Index (CPI). Lowering interest rates is one of the Bank’s key strategies for stimulating economic activity and avoiding stagnation.
After holding the base rate in December, the BoE stated it would take a “careful and gradual” approach to future rate cuts. Initially, markets anticipated up to four reductions before the end of 2025. However, due to global events beyond the Bank’s control, forecasts have now scaled back to two or three cuts of 0.25% each, with the first implemented today. If this trend continues, the base rate could fall to around 4% by 2025, although this remains subject to change based on wider economic conditions.
The next interest rate decision will be announced at midday on 20 March 2025 and every 6 weeks after.
Impact on mortgages
Since most financial institutions borrow significant amounts from the Bank of England, a drop in interest rates lowers their borrowing costs.
For those with fixed-rate mortgages (which accounted for 86% of all UK mortgages as of Q3 2022), there will be no immediate impact, as rates remain locked in during the fixed term. However, this rate reduction offers a promising outlook for homeowners and investors when it comes time to remortgage.
Borrowers with tracker mortgages, estimated to a number of around 629,000, will see an immediate reduction in their repayment amounts as these mortgages move in line with the base rate. Meanwhile, those on standard variable rate (SVR) mortgages will need to wait to see how their lender responds to the rate cut.
Recent changes in mortgage rates
Mortgage rates have seen slight increases in recent weeks, although some lenders have reduced rates on certain products. However, over the past week, the average rate for a 2-year fixed mortgage has decreased by 0.02% to 5%, while the average rate for a 5-year fixed mortgage is now 4.79%.
Positive news for homeowners remortgaging in 2025
For the 1.8 million homeowners set to remortgage in 2025, any reduction in the base rate is certainly welcome news.
Remortgaging can be a daunting process, but a drop in interest rates, alongside the possibility of further decreases, often prompts greater competition among banks vying for your business. This increased competition typically results in better savings for borrowers.
If your remortgage is approaching, it’s wise to shop around in the coming months to secure the best possible mortgage deal. Mortgage brokers are experts in searching the market for competitive offers and can often find deals that outperform those available directly to consumers. If you’d like assistance, we can introduce you to one of our specialist whole-of-market partners, who would be happy to help.
Simply call us on 0208 126 8700 or email us at info@newbrickz.com.
