On May 8, 2025, the Bank of England made a significant decision by reducing its base interest rate from 4.5% to 4.25%. This change follows two interest rate cuts in the second half of last year and another in February 2025. But what does this mean for homeowners, prospective buyers, and the UK property market as a whole?
Will My Mortgage Get Cheaper?
For the vast majority of UK homeowners, the answer is no. Approximately 85% of the UK’s 8.4 million existing residential mortgages are on fixed rates, meaning monthly repayments will remain unchanged. Fixed-rate mortgage holders are insulated from rate fluctuations until their deals expire.
However, for the 590,000 homeowners with base-rate tracker mortgages, the news is more positive. Their rates are directly tied to the Bank of England’s base rate, so they will benefit from lower monthly payments, averaging a reduction of £28.97 per month, according to UK Finance. Those on standard variable rate (SVR) mortgages—around 540,000 borrowers—might also see lower payments, but this will depend on whether their lenders decide to pass on the full cut.
The Outlook for Fixed-Rate Mortgages
The interest rate cut has intensified competition among lenders, with many cutting rates on new fixed-rate deals. Nationwide, Halifax, TSB, and Virgin Money are among those offering sub-4% rates to new borrowers, including first-time buyers. Some experts predict that by the end of 2025, leading two-year fixed-rate deals could stabilize at around 3.5%, with five-year deals close to 3.6%.
But caution is advised. Experts suggest significant rate reductions are unlikely unless the base rate falls below 2.5%—a scenario not currently expected.
Fixed vs. Tracker Mortgages: Which is Best?
Choosing between a fixed-rate and a tracker mortgage depends on individual circumstances. Fixed-rate mortgages offer stability, providing certainty in monthly payments—a crucial factor for those with tight budgets. Conversely, tracker mortgages align with the Bank of England’s base rate, which could mean lower payments if further cuts occur.
However, fixed-rate deals are currently cheaper than many tracker options, providing security without the risk of potential increases.
What About Savings?
The rate cut will likely impact savers. While savings accounts are not directly tied to the base rate, many banks will reduce their easy-access savings rates in response. At present, the average easy-access rate is 2.78%, but this could drop in the coming weeks.
Top-paying easy-access accounts, like those from Chip and Sidekick, currently offer around 4.76%. Fixed-rate savings bonds may offer better returns, with one-year fixed-rate bonds from Cynergy Bank and Tandem Bank providing rates of up to 4.55%.
What This Means for the Property Market
In the broader property market, lower borrowing costs could boost demand, particularly among first-time buyers and those seeking to remortgage. As more buyers become eligible for attractive deals, sellers may see increased interest in their properties.
However, with many existing homeowners locked into fixed rates, the overall impact may be moderate. Buyers should remain vigilant and seek professional advice to ensure they secure the best possible mortgage deal for their needs.
Conclusion
The Bank of England’s latest interest rate cut brings both opportunities and challenges for UK homeowners, buyers, and savers. Understanding the implications of this change is crucial for making informed financial decisions. Whether you are exploring a new mortgage or re-evaluating your savings strategy, staying informed will help you navigate the evolving market with confidence.
