Understanding the recent BoE base rate cut
The Bank of England has just reduced interest rates from 4.75% to 4.5% – the lowest level since June 2023.
The BoE base rate is the interest rate the central bank charges commercial banks for borrowing money. It serves as a benchmark for interest rates across the UK economy. When the BoE lowers this rate, borrowing becomes cheaper for banks, which can pass on these savings to consumers through lower interest rates on loans and mortgages.
What does BoE base rate cut mean for a new home mortgage?
The price of fixed-rate mortgages is tied to the outlook for interest rates. Recently, lenders have been reducing mortgage rates in anticipation of multiple rate cuts this year. For example, Yorkshire Building Society has cut interest rates by up to 0.31%, with the most significant reductions for borrowers with a 40% deposit. Rates on 90% mortgages have dropped by up to 0.17%. Following these cuts, a 75% two-year fixed-rate mortgage for remortgagers will cost 4.39%.
Holly Tomlinson, a financial planner at Quilter Financial Advisers, told The Guardian, “We may see some lenders introduce more competitive fixed-rate deals in the coming weeks, but most new deals have already priced in today’s cut.”
What does this mean for those selling a property?
The recent cuts have come at the market’s most buoyant season – post Christmas tends to see the most homes coming to market and being purchased in the whole calendar year.
This natural increase in home movers, coupled with the recent interest rate cuts to mortgage products, is expected to be a positive sign for those looking to sell their property. In the week of the cuts (week ending 7th February 2025), Strata’s own resale team sold a staggering 10 properties in seven days.
Emily McKenzie, Head of Sales at Strata, said “The resale market is the best it has been in months, and we’re seeing more customers take advantage of our Part Exchange and Help to Move schemes than even before because of this. They’re flying out as soon as they’re coming in!”
Impact on deposit savings
Savings returns are not directly tied to the BoE base rate, but reductions often affect savers with easy-access accounts and those without fixed interest rates. Many savers have already seen reduced returns following November's rate cut.
Interest rates on new fixed-rate savings accounts have been declining, reflecting expectations of future base rate levels. According to Moneyfacts, the average rate for a one-year fixed-rate deal is 4.2%, which is below the base rate. However, some newer banks are offering competitive deals to attract business. For instance, you can earn 4.67% on a one-year fixed-rate bond via the savings platform Raisin UK.
Andrew Hagger, founder of Moneycomms.co.uk, advises, “Savers will see easy access savings rates edging lower, so it's wise to compare options and switch to better rates if your current bank’s offering falls short.”
“If you’re considering locking money away in a fixed-rate bond or ISA for a year or two, now is a sensible time to secure current rates before they potentially drop further,” Hagger adds.
The takeaway: A reduction in the Bank of England’s base rate can be beneficial for many mortgage holders and prospective buyers, offering lower borrowing costs and potential savings. With Stamp Duty increases looming and developers offering to contributions towards Stamp Duty, deposit and more, there’s never been a better time to buy a new build home.
