Lower base rate, higher mortgage hopes
4 minute read
Lower base rate, higher mortgage hopes
4 minute read
We can already mark 2025 as the year the base rate is on the move! With two drops in six months, the Bank of England’s base rate is currently sitting at 4.25%. But what does that mean for us all?
Put simply, when the base rate drops, interest rates usually follow too. This could mean the drop is good news for borrowers! There could be a host of benefits on the horizon for homeowners...
1. Lower repayments for variable rate mortgages
This is a clear benefit for those on tracker mortgages and most Standard Variable Rates (SVRs).
Tracker mortgages are directly linked to the base rate. This means when the Bank of England lowers the rate, your mortgage rate lowers too. For example, a 0.25% base rate reduction means your mortgage will drop by the same amount. This could lead to sizable savings over the term of your mortgage.
Although SVRs aren’t linked to the base rate in the same way, they often move with it. So, if you’re on an SVR, the base rate drop could encourage your provider to bring down their rates over time.
This might change if the base rate starts to rise again. If it starts to go up, so too will the rate on tracker mortgages and it’s likely interest rates on SVRs will follow suit.
2. More affordable homes for first time buyers
It costs a fair amount to buy a home in the UK. But when the base rate is lower, it costs less to borrow, opening doors for first time buyers.
Banks and building societies look at how much someone can borrow based on their income and outgoings. Lower interest rates mean your future repayments are lower. This means younger buyers or those with smaller deposits might pass their ‘affordability checks’ more easily.
If you know someone looking to buy, tell them to keep an eye on rates!
3. Fixed rate mortgages will likely become more competitive
If you have a mortgage that’s already on a fixed rate, you won’t see any change to your rate or repayments just yet. But a base rate cut will influence new rates ready for when your current deal ends.
As the base rate falls, banks and building societies usually reduce their rates on new fixed rate products. This is to be more competitive and entice new borrowers to check out their rates.
4. The housing market could go BOOM
Put simply, when it’s cheaper to borrow, more people can afford to move!
This surge in activity can be good for everyone. From sellers to buyers, estate agents to developers. It can also lead to a wider growth in the UK economy, too!
5. Spend more on your sunny days
Lower mortgage payments often mean we have more money in our back-pocket each month. So, you might find you have more money to spend on your sunny day dreams... Once-in-a-lifetime trips, new cars or even home improvements…
But beyond treating yourself, spending your feel-good fund could help more than just your mood. It can also further fuel the economic growth we mentioned before.
So, from a mortgage perspective, the base rate reduction has made the future a little brighter. We’re not sure if there will be more drops yet, and the base rate could go up again at any time. But we know one thing for certain. Keeping up to date with the base rate could lead to big money savings.
June 2025
Related articles:
Why do interest rates change?
This blog will help you to learn more about your mortgage rate and why you will likely see a change in your rate when you change your mortgage product in the future, depending on the length of your current term.
