The Bank of England (BoE) has reduced its base rate from 4.5% to 4.25% in a move that could pave the way for cheaper mortgages in the long run.
The central bank’s decision was largely expected amid easing inflation and many mortgage lenders have already reduced their rates in anticipation of the announcement; but a downward trajectory for the base rate bodes well for further mortgage reductions this year.
Although analyst predictions turned out to be accurate, there was disagreement among the bank’s monetary policy committee about the direction the base rate should head in. Five voted to reduce it to 4.25% while no change and a larger cut of 0.5% got two votes each.
The move marks the second rates cut by the BoE in 2025, following its decision to hold at 4.5% in March, but comes amid concerns around global economics following US President Donald Trump’s global trade tariffs.
Does this mean mortgage rates are coming down?
That’s the idea, at least. The Bank of England ’s latest base rates cut is designed to boost spending by making borrowing cheaper, and this includes mortgage payments.
Those on tracker and variable rate mortgages will see an immediate reduction to their monthly payments by an equivalent percentage to the BoE’s base rate cut. According to analysis from trade body UK Finance, this amounts to a saving of around £29 per month.
Those locked into fixed-rate mortgages won’t benefit until they remortgage (if at all).
Many mortgage lenders anticipated a rates cut and had already priced in their products in line with today’s decision, but it’s possible that others could cut the rates on their fixed and variable rate deals in response to the news coming from Threadneedle Street.
Mark Langshaw - Head of Content
Our Analysis
The global uncertainty whipped up by Trump’s global trade tariffs has likely convinced the BoE to temper the size of its latest rates cut, but a reduction of any kind will breed confidence in the mortgage industry, certainly for the short term and possibly beyond.
Although most mortgage lenders had already taken this rates cut into account, further reductions to produce ranges may follow between now 19th June, when the bank’s monetary policy committee is next due to meet to review the direction of the base rate.
There could be more turbulence to come, though not as severe as we have seen in recent years. When announcing its latest rates cut, the bank noted that inflation is likely to rise again temporarily due to climbing energy prices, which could halt further cuts for now.
Longer term, global economics could also shape the size and pace of future rates cuts. No doubt policymakers are watching with keen interest to see how the imminent UK-US trade deal plays out, and continuing to advise investors to exercise caution… for now.
