Interest rates fall to 3.75% as Bank of England eases borrowing pressure

Property118

Interest rates fall to 3.75% as Bank of England eases borrowing pressure

The Bank of England has reduced its base rate from 4% to 3.75%, cutting borrowing costs to their lowest level since February 2023.

The decision had been widely anticipated after recent data pointed to a cooling economy.

Markets had already priced in a move, with analysts expecting policymakers to act following a run of softer figures.

Inflation came in lower than forecast at 3.2%, wage growth showed signs of easing and broader activity has slowed.

The base rate acts as a benchmark for banks and lenders, shaping what households and businesses pay on mortgages, credit cards and loans.

Five voted for rate cut

Five members of the Bank’s nine-member Monetary Policy Committee voted for a rate cut, while four wanted to hold it at 4%.

The Bank’s governor Andrew Bailey, said: “We still think rates are on a gradual path downward but with every cut we make, how much further we go becomes a closer call.”

The chancellor Rachel Reeves has welcomed the news of the pre-Christmas rate cut.

She said: “This is the sixth interest rate cut since the election – that’s the fastest pace of cuts in 17 years, good news for families with mortgages and businesses with loans.”

Industry reaction to base rate cut

Steve Cox, Chief Commercial Officer at buy-to-let lender, Fleet Mortgages: “The Bank’s decision to cut Bank Base Rate today will come as little surprise given recent market sentiment and the broader economic signals pointing in this direction. In many ways, a number of lenders have been ahead of this particular curve having been actively pricing it into products.

“We’ve seen a flurry of mortgage rate cuts across the residential and buy-to-let sectors over the last week or so perhaps in anticipation of this decision and in an attempt to grow volume and pipeline as we move into 2026. In the buy-to-let space, product pricing continues to improve, supported not just by this rate change, but by swaps which are increasingly aligned with the view that further cuts could follow into 2026.

“For landlords, this is a positive way to end the year, and a promising start to 2026. With greater certainty following the Autumn Statement – including clarity on tax changes that won’t bite until April 2027 and with the Renters’ Rights Act coming into force next year, any opportunity to reduce monthly mortgage costs will be welcomed.

“Landlords coming to the end of two-year deals in particular will find a much more competitive rate environment than they did in 2023 or early 2024, and this should support renewed purchase and refinance activity in the months ahead.”

Festive cheer for borrowers

Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “A cut in base rate was a dead cert after the recent inflation figures, which while still above the Bank’s 2 per cent target, are moving in the right direction.

“This news will add to the festive cheer borrowers are already experiencing with lenders cutting mortgage rates, keen to attract business and get 2026 off to a strong start.

“With some lenders repricing on a weekly basis, it is now possible to access a short-term fix at just over 3.5 per cent. Given how relatively quiet activity is with the usual pre-Christmas lull, we would expect to see rates dip below that level in late December or early January. It might take a little longer for five-year fixes to breach the 3.5 per cent barrier but it could happen in the new year, with rates currently at just over 3.7 per cent.

For next year Mr Harris predicts further base rate cut: “Market expectations are for another two or three base rate reductions in the new year. This will provide a welcome shot in the arm for the housing market now which suffered from pre-Budget speculation over property taxes which on the whole were not as bad as many feared.

“Those remortgaging in the next few months have a free throw of the dice as rates can be booked up to six months before you need them. You can book a rate now and review prior to completion, if rates have fallen by then, you can enquire about switching to lower rate. If not, you can keep what you have.”

Sprinkle of good news

Nick Leeming, Chairman of Jackson-Stops, comments: “Today’s news is a shot in the arm for the housing market just as we enter peak property browsing season over the Christmas break. Lower borrowing costs is a key driver of renewed buyer confidence. Unlocking more competitive pricing should lower monthly repayments for homeowners on variable or tracker mortgages, improve affordability at the low to mid end, and stimulate buyer activity.

“We expect to see a gradual increase in buyer enquiries, improved sentiment, and a more balanced market, with the potential to encourage discretionary movers and international buyers back into the market. While broader economic factors such as employment trends and wage growth still influence buyer behaviour, ultimately lower borrowing costs will make moving home more financially feasible.

“The sprinkle of good news for the housing market has come at a much-needed time after a market freeze in the run up to the Budget. Whilst the consequences of the resulting mansion tax have yet to be determined, many are now breathing a sigh of relief with certainty in the air and added economic confidence from falling interest rates. The resilience of the housing market over the past few months points to an expected period of long-term stability.”

Extremely positive

Nathan Emerson, CEO of Propertymark, comments: “As we round the year off, it is extremely positive to see the Bank of England in a position where it has the confidence to make what is now a fourth base rate cut within twelve months.

“Although mortgage agreements vary, today’s news could typically represent a saving of around £150 each month for those currently on a tracker mortgage, or for those considering a new mortgage deal, when compared to the start of 2025.

“This, coupled with the fact that we have also witnessed the rate of inflation dip further only yesterday, should help create a strong platform for consumer confidence and affordability as we progress into the new year. In addition, there is real potential for lenders to support first-time buyers with more focused products to help uplift the market over the coming weeks and months.”

Boost for the property and mortgage markets

Kris Brewster, Retail Director at LHV Bank said: “As CPI inflation dropped to a lower than expected 3.2% yesterday, the lowest number for eight years, this opened the door for the MPC to vote in favour of a cut to 3.75%.

“This will be a boost for the property and mortgage markets before the start of a new year as loans potentially become more affordable, but savers face a bigger battle to protect their incomes and spending power in the face of frozen income tax thresholds and the higher cost of living overall.

“To beat sticky inflation, consumers must protect their cash by shopping around ready to switch to current account rates delivering inflation beating rates, rewarding customers for their loyalty in a market that so often returns so little on day-to-day money. With Moneyfacts data suggesting one in four savers have never switched accounts, consumers must get out of their comfort zone to beat the downward trajectory of Base Rates predicted over 2026 and lock in higher returns with a top ranked provider now.”

Cut is not a great surprise

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “This cut is not a great surprise given the news that has come out this week which isn’t all good for the economy.

“The encouraging news is that the housing market has been relatively resilient despite many concerns about the contents of the Budget, which turned out not to be as bad as anticipated. We don’t expect fireworks after the new year but now interest rates are a little lower, we do expect a gradual improvement with property price increases tempered by continuing concerns about the economy and the amount of choice available.

“Many of our customers have been sitting on their hands, not knowing which way to turn but they haven’t withdrawn from the market altogether. Many are now saying since the Budget – ‘why not?’ rather than ‘why?’, which is what they were saying previously.”

Bank Rate cut headlines are always positive for home-mover sentiment

Matt Smith, Rightmove’s mortgages expert says: “The financial markets and mortgage lenders have been expecting today’s Bank Rate cut for a while, and therefore responded early with mortgage rate cuts in December to round off the year. Bank Rate cut headlines are always positive for home-mover sentiment, even if this one has already been baked into mortgage rate cuts and won’t drive further drops.

“However, what will have more of an impact on the future direction of mortgage rates is the better than expected inflation figure reported earlier this week, which has improved the market’s forecast for next year.

“Don’t expect any big rate drops before Christmas while the property market is quieter, but it does mean we could now see a fresh round of rate cuts in the new year as lenders look to start the new year with a bang. Home-movers are likely to see the most notable rate drops for two-year fixed products rather than five, and next year we expect the gap between two-year and five-year deals to grow.”

The post Interest rates fall to 3.75% as Bank of England eases borrowing pressure appeared first on Property118.

View Full Article: Interest rates fall to 3.75% as Bank of England eases borrowing pressure