The base rate cut is welcome news for market confidence, but the impact on mortgage pricing will not be immediate for fixed rate borrowers.
The Bank of England’s Monetary Policy Committee (MPC) lowered the base rate to 4.5% today, its lowest level since July 2023.
Stephanie Daley, director of partnerships at mortgage adviser Alexander Hall, said the decision was a “welcome one” for homebuyers and brings a “much-needed boost to property market sentiment, following the slight upward pressure on prices caused by increasing inflation levels in recent months”.
She continued: “However, with the level of inflation remaining above the Bank of England’s 2% target, it’s likely that lenders will continue to act with vigilance, and we can expect this ongoing uncertainty to be reflected in mortgage pricing.
“So, whilst we are heading in the right direction and some lenders are reducing their rates, those planning their move should continue to seek the advice of an expert mortgage adviser to ensure that they are securing the very best rate available to them in the current market.”
Daley added that one positive outcome could be the lowering of certain lenders’ stress rates, which could “give a bit more flexibility in affordability for customers and possibly give them more buying or remortgage options”.
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Lenders have already priced in base rate cut
Anthony Harris, independent financial adviser at national advice firm Continuum, said lenders tended to “look ahead to work out what rates they should set”, so many had incorporated a base rate cut into their pricing, and therefore there would not be “major changes”.
“The cut to the base rate has been strongly signposted in the run-up to today’s announcement and has already fed through to mortgage rates. A number of lenders have in fact lowered their rates over the past week in advance of the announcement.
“However, with today’s commentary indicating that the bank may make further small rate cuts over the coming months, lenders could make further changes to their fixed rate products, as they are effectively forward pricing. Whilst we may see some more cuts as a result, rates are likely to remain fairly steady longer-term as the potential for any dramatic rate cuts remains low,” he noted.
Tomlinson, financial planner at Quilter, agreed that lenders were already making changes ahead of the base rate decision today and they had “proactively reduced rates on various mortgage products”.
“Now that the rate cut is in place, homeowners on variable or tracker mortgages should start noticing lower monthly payments too. We may see some lenders introduce more competitive fixed rate deals in the coming weeks but, typically, most new deals have already priced in today’s cut,” he said.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said swap rates were continuing their “downwards path”, leading to falls in mortgage rates, which was reversing rate increases.
“This rate reduction was largely expected by the markets and has therefore been factored into pricing already. However, a continual decline in swaps would enable lenders to price more keenly, easing borrowers’ affordability concerns.
“Those looking to take out a new mortgage or refinance in coming months should plan ahead as much as possible, seeking advice from a whole-of-market broker,” he noted.
Tracker and SVR borrowers will benefit but fixed rate improvements will come
David Hollingworth, associate director at L&C Mortgages, said tracker borrowers will be the “immediate beneficiaries” of the base rate cut.
He said a borrower with a £200,000 25-year repayment mortgage could see payments fall by £29 per month.
Borrowers on a standard variable rate (SVR) may also benefit, but improvements are “not guaranteed”.
“The SVR will also usually be substantially higher than the rates on offer on fixed or tracker deals, so borrowers shouldn’t be lulled into a false sense of security, as they could be paying well over the odds,” he said.
Hollingworth said fixed rate borrowers “won’t see any immediate impact”, but with as many 1.8 million fixed rate mortgages maturing this year, base rate cuts would be “very welcome”.
“Some fixed rate borrowers will face a painful hike in payments as they come to the end of their ultra-low five-year fix. Today’s decision may help sugar that pill a little.
“On the other hand, borrowers that took a two-year deal in the aftermath of the mini Budget will be keen to take advantage of the much-improved market now,” he noted.
Hollingworth urged borrowers to start reviewing rates three or four months in advance.
“It’s been a jittery start to the year in terms of mortgage rates. Although the outlook should be more positive, securing a rate will protect against any potential increases without preventing a shift to a lower rate before completion if the market continues to improve,” he said.
Harris said the question was when the “next rate cut will come”, with the market pricing in three reductions by the end of this year.
“Much attention will be paid to the voting pattern of the committee to see how fast, and far, further rate reductions will occur. These will boost the housing market, improving affordability and making budgeting easier,” he noted.
