The base rate has been cut from 4% to 3.75% after a 5-4 vote from the Bank of England’s Monetary Policy Committee.
The reduction comes after inflation slowed from 3.6% to 3.2% in November, getting closer to the Bank’s 2% target.
Peter Stimson, director of mortgages at the lender MPowered, said: “With inflation falling away and Britain’s economy shrinking, the markets had convinced themselves that today’s decision would be a full-throttle cut, which would be swiftly followed by more in 2026.
“The narrowness of the vote suggests that the Bank’s ratesetting committee isn’t so sure. Nearly half of its members voted to leave rates unchanged, and the accompanying minutes were curiously ambivalent.
“While saying that the Base Rate is likely to continue on a ‘gradual downward path’, the text added that future judgments ‘will become a closer call’.”
Stimson added: “I’m not sure how things can get any closer than today’s 5-4 split. In the coded language beloved of central bankers, the committee is saying that deep divisions remain between its members.
“The mortgage swaps market, which predicts the future course of the Base Rate and is used by mortgage lenders to determine the fixed interest rates they offer to borrowers, still suggests there will be a further Base Rate cut in 2026.
“But the likelihood of that cut coming as soon as February has been pegged back by today’s vote and minutes, and this change to the timeline may well feed into the fixed rates that mortgage lenders offer to their customers now.”
Mortgage rates
Mortgage holders coming to the end of their deal are likely to benefit from successive base rate cuts in 2025, as the base rate stood at 4.75% one year ago.
Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “If you have a mortgage coming to an end in the next 3-6 months, it’s worth searching out a good deal.
“There are some great rates available right now, and you could snap up a two- or five-year fix for less than 4%. If mortgage rates fall before the remortgage is due, you can hunt around for a better deal.
“However, if they were to rise with a surprise in inflation, you’ll have locked in a bargain.”
Peter Stimson, director of mortgages at the lender MPowered, said: ““Many lenders trimmed their rates in anticipation of today’s decision, as part of a last-ditch effort to grab market share and hit their 2025 lending targets.
“The Bank’s decision means the wave of rate cuts we’ve seen in recent weeks may now subside. So if you’re planning to buy a home in 2026 and have been holding out for mortgage rates to get even lower, don’t expect them to keep falling.
“We may well be at the bottom as far as mortgage rates are concerned, and the current mortgage deals may be as cheap as they are going to get.”
However it’s thought most lenders had already priced in a base rate cut, meaning this reduction shouldn’t make a big difference to available rates.
Matt Smith, Rightmove’s mortgages expert, said: “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.”
