The Bank of England (BoE) voted to cut the base rate by 0.25% to 4.5% on Thursday, 6th February 2025. This move was widely anticipated after the rate was held in December last year, continuing its downward trend.

Traders in swap markets now expect two more base rate cuts this year, with roughly a 40% chance of a third. Following the announcement, the pound initially slumped before recovering, while the FTSE 100 surged to a record high, rising 1.1%.

All nine members of the Monetary Policy Committee (MPC) voted for a rate cut—two of whom supported a larger 0.5% reduction. This reflects concerns over the UK’s sluggish economic growth. Growth forecasts for 2025 have been revised down from 1.5% (as projected in November) to 0.75%, though forecasts for 2026 and 2027 have been upgraded from 1.25% to 1.5%.

The MPC’s latest interest rate decision and revised growth forecasts has sparked fears of stagflation, though Sir Keir Starmer has welcomed the interest rate move, though cautioning that there is still “more to do” to stimulate economic growth. Inflation is expected to rise to 3.7% in Q3 2025, largely due to higher energy and water bills, before returning to the 2% target by the end of 2027.

These forecasts do not factor in the potential impact of Donald Trump’s tariff plans and the global uncertainty in inflation this has created. The BoE warns this could hinder growth and complicate inflation projections.

How will the base rate drop impact mortgage rates?

Tracker mortgages

A drop in the base rate means lower monthly mortgage payments for borrowers with variable rate mortgages that track the Bank of England base rate.

Standard variable rate (SVR) mortgages

Those on an SVR or a discount SVR product will have to wait to see if their lender responds accordingly. While lenders generally only change their SVR when the base rate moves, this reduction is not always passed on – or may only pass on part of it.

Fixed-rate mortgages

For those on fixed-rate deals, there will be no immediate impact as the base rate cut was likely already factored into rate pricing. However, the base rate cut is a step in the right direction to lower mortgage rates and may prompt some lenders to offer cheaper deals for new and renewing customers in the future.

Some mortgage rate reductions were announced ahead of the BoE’s rate cut. SONIA (Sterling Overnight Index Average) swaps – a key variable impacting on fixed mortgage rates – have been trending downward following a temporary rise in gilt yields at the start of the year. Interestingly, 2-year swaps are now close to 5-year swaps (as of 11/02/25 ), suggesting expectations for a stable base rate in the long term and for this stability to be potentially reached over the next year or so.

If you are in the process of arranging a new mortgage, it is important to remember that most mortgage offers are valid for six months. This means borrowers can lock in today’s rates to protect against the risk of potential future increases, while still having the flexibility to reassess if rates drop closer to their completion date. Your Private Finance consultant will endeavour to keep an eye on rates until completion and advise if there are preferable options available to you during this time. It is important to note that most lenders will not monitor the market for you or let you know if a better deal has entered the market.

Potential for a busy Spring Market

The housing market has had a strong start to 2025, with early indicators pointing to an active Spring Market.

A record number of early-bird sellers entered the market in January, creating the highest level of buyer choice since 2015, according to Rightmove. They state that stable property prices and robust buyer demand have motivated sellers to list properties.

Property prices have shown resilience, with Halifax reporting a 0.7% increase in January. The average property price now stands at a record high of £299,138, with London retaining the highest average price at £548,288. According to Zoopla, property prices have risen for half of the UK’s 30 million homes in 2024—a positive comparison compared to 2023.

Looking forward

2025 has begun on a positive note, but key uncertainties remain. The pace and scale of future base rate reductions, the impact of the upcoming Stamp Duty Land Tax changes from March 31st, and global inflationary risks, all introduce an element of unpredictability.

A further base rate cut is welcome news for borrowers in the context of mortgage rates and affordability. If additional cuts materialise, as some predict, mortgage rates could continue to decline, improving affordability for borrowers. There are fixed-rate mortgages currently in the early 4% range, and some lenders are setting ambitious lending targets for the year, which could drive competitive pricing.

Recent developments highlight how quickly market sentiment and forecasts can shift. Working with an experienced mortgage broker can ensure you’re prepared to make the most of any opportunities that arise as market conditions evolve.

For personalised mortgage advice, please contact our team on 0800 980 8777 or email info@privatefinance.co.uk. You can also book an appointment at a time that is convenient for you here.

Your home may be repossessed if you do not keep up repayments on your mortgage. Private Finance is not a tax advisor, and this article does not constitute tax advice.

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