The Bank of England has officially lowered the central interest rate to 3.75%, following analysts' predictions of a final cut before the end of the year.
The Bank's Monetary Policy Committee agreed on a 0.25% reduction from 4%, marking not only the fourth cut of the year but the lowest base rate since early 2023.
For homebuyers, the base rate significantly impacts both mortgages and loans, whilst also influencing the interest rates that banks provide on savings accounts. After peaking at 5.25% in late 2023, the BoE has sought to reduce it to 4%, suggesting inflation has dropped to 'manageable' levels.
Urged on by business leaders, who suggest that cuts are necessary to stimulate a 'flatlining' economy, the BoE have been significantly more cautious due to high inflation. Data from this week shows that inflation has dropped to 3.2% in November, which when combined with rising unemployment and poor economic readings, has led to the base rate reduction today.
So what does this mean for you?
While most mortgage deals are not immediately affected by any cut to the base rate, lenders start adjusting rates for new deals based on 'swap rates', an agreement based on predicted interest rate movements.
With that in mind, the following may occur:
If you're on a tracker mortgage, your rate will drop by 0.25%: This is equivalent to roughly £15 a month lower repayments per £100,000 of mortgage debt.
If you're on a variable mortgage, your rate will drop by up to 0.25%: This will be less depending on the lender and exact mortgage you have.
Following this cut, it's expected that the rate of change should now slow down. Experts suggest that if a final cut occurs, taking the base rate down to 3.50%, then more 'convincing evidence' would be necessary before any further cuts take place.
