Interest Rate Cut to 4.25%- The Lowest in Two Years
The Bank of England has cut interest rates to the lowest rate in 2 years- what does that mean for your mortgage rate and will they go down any further?
The Bank of England has announced it will cut the base rate by 0.25% this month to 4.25%. he cut in rates to 4.25% marks the fourth reduction from last year's high of 5.25%, and is the second cut so far in 2025.
The Bank of England's committee was divided in the decision with five members voting to cut rates to 4.25% and two voting in favour of a larger reduction to bring the rate down to 4% and the remaining two voting for no change.
What does the base rate mean for my current mortgage?
A change in the base rate can affect how much interest you will pay on loans, including your mortgage.
If you’re on a fixed-rate deal, your monthly payments won’t change until the end of your deal.
And if you’re on a tracker mortgage, or a variable rate mortgage that follows Base Rate changes, this month’s Base Rate reduction will mean your monthly payments will take on this drop.
If you’re coming to the end of your fixed-rate mortgage soon, you’ve probably already started to think about the rate you’ll be offered on your next deal. You may now be looking at better deals as mortgage lenders may reduce some of their rates.
What does this mean if I am looking to move house and for my affordability?
Firstly, lower base rates can lead to lower mortgage rates from lenders. So if you are looking to move home this may now be more affordable.
Lenders’ ‘stress test’ calculations – which is how they calculate whether someone could afford a mortgage were their repayments to jump considerably – are directly linked to the standard variable rate mortgages.
The ‘stressed rate’ is usually the lender’s SVR, with at least 1% added on top. So, if lenders’ SVRs reduce in line with this Base Rate cut, we might start to see affordability improve, because the stressed amount will now be lower than if Base Rate was at 4.5%.
What is happening to inflation?
The latest inflation figures shows prices rose 2.5% in the year to March, however household bill increases from the start of April such as energy and water prices mean that this rate might increase somewhat. The Bank of England has said it expects the rise to be 'temporary' before falling back with lower oil and gas prices set to come through in the months coming.
Will interest rates drop further?
Analysts predict that the Bank's Monetary Policy Committee will announce further cuts later in the year, but it is all speculation until the Bank of England make their official announcements. Right now, it’s looking more likely that, barring any shocks to the wider economy, the Base Rate will continue to edge downwards for the near future. Though as always, this could change depending on what happens in the broader economic environment.
The Bank of England committee meets every 6 weeks to discuss and review interest rates, with the next being on the 19th of June 2025.
If you are thinking of making a move this year then get in touch with us to discuss why now might be the right time to sell or get an accurate up to date valuation.
Contact us:
Bebington Branch
0151 644 6000
lesley@lesleyhooks.co.uk
Bromborough Branch
0151 334 5875
rachael@lesleyhooks.co.uk