Bank of England Cuts Interest Rates to 4.75% – What It Means for Homeowners and Borrowers

The Bank of England has lowered its base interest rate from 5% to 4.75%, marking the second rate cut in 2024. The previous reduction in August ended more than four years of steady or rising rates. Despite these adjustments, borrowing costs remain challenging for many households as the UK navigates an environment of high interest rates compared to the last decade.

Impact on Mortgages

Interest rates directly influence mortgage repayments, credit card costs, and savings rates for millions across the UK. Here’s what the latest rate cut means for different mortgage types:

• Tracker Mortgages:
  Around 600,000 homeowners have tracker mortgages that are linked to the Bank of England’s base rate. These homeowners will benefit immediately from the reduction, with monthly repayments decreasing.
• Fixed-Rate Mortgages:
  Over 80% of mortgage holders are on fixed-rate deals. While their payments remain unaffected for now, the rate cut could influence pricing for future deals. However, fixed mortgage rates remain high:
  • Average two-year fixed rate: 5.42%
  • Average five-year fixed rate: 5.13%

Challenges for Borrowers

Many fixed-rate mortgage holders who locked in at historically low interest rates are nearing the end of their deals. About 800,000 fixed-rate mortgages with interest rates of 3% or lower are set to expire annually through 2027. These borrowers face significantly higher costs when remortgaging, reflecting the increased rates in today’s market.

Broader Considerations

Although the base rate cut is a positive signal, its impact on fixed-rate mortgage pricing may be limited in the short term. Factors such as market reactions to the Budget and global economic events continue to play a significant role in determining lending rates.

Looking Ahead

Borrowers should closely monitor the market and seek financial advice to navigate this evolving landscape. While rate cuts provide some relief, the era of ultra-low mortgage rates appears to be over, at least for now. Planning ahead is essential, especially for those approaching the end of their fixed-rate terms.

The inflation rate rose by more than expected to 2.3% last month, and this raises the question as to whether the Bank of England will put future interest rate cuts on hold until the inflation rate drops back under 2%, or whether it will continue to cut rates to stimulate a faltering economy still reeling from the Labour government’s recent tax increases.

Whether you are purchasing a new home or navigating a remortgage, please contact our expert team of property lawyers by telephoning 01267 237441 or emailing us at mail@utk.co.uk.