Homeowners and buyers will no doubt be heaving a sigh of relief after the Bank of England’s Monetary Policy Committee voted 7-2 to cut the base rate by quarter of a percentage point to 4.50%. Two members voted to reduce base rate by 0.50% to 4.25%.
It’s the first rate cut since November last year, when the base rate was trimmed from 5% to 4.75%. Easing inflation contributed to the Committee’s decision to trim rates, with the Consumer Price Index, which is the Government’s preferred measure of inflation, falling to 2.5% in the 12 months to December, down from 2.6% in November. It’s the first time that inflation has fallen for three months, although it remains above the government’s 2% target.
This month’s base rate reduction should provide a further boost to affordability, with latest Bank of England data showing that UK mortgage approvals rose in December.
The Bank said that the effective interest rate - or in other words the actual interest paid - on newly drawn mortgages fell by three basis points to 4.47% in December, the lowest rate seen since April 2023.
What February’s base rate cut means for you
Homeowners on variable tracker mortgages, which typically link directly to the base rate, should see their monthly payments reduce soon following the base rate cut. If, however, you have any other type of variable rate mortgage, or you’re currently paying your lender’s standard variable rate (SVR), there are no guarantees that the rate cut will be passed on in full - it’ll be down to the discretion of your lender.
Our SVR watch provides a rundown of which lenders have adjusted their rates. Bear in mind that if you are on an SVR, the chances are you could significantly reduce your monthly mortgage costs by moving to a cheaper deal.
If you have a fixed rate mortgage, you won’t see any immediate change in your mortgage payments following this month’s rate reduction. It should however, mean that when your current deal finishes, you may be able to lock into a new rate that’s lower than the fixed rates we’ve seen over the past couple of years. However, bear in mind that if you locked into a very low rate fix a few years back, you’re still likely to see a jump in the cost of your repayments when you come to remortgage.
