On May 8, 2025, the Bank of England's Monetary Policy Committee made a significant move by cutting the base interest rate from 4.5% to 4.25%. This decision has been widely anticipated and is already having a ripple effect across the mortgage and property sectors.
The cut is expected to provide a much-needed boost for borrowers, particularly those on tracker mortgages, as it translates into lower borrowing costs. According to UK Finance, a typical homeowner with a base-rate tracker mortgage will see their monthly payments decrease by approximately £28.97, which could lead to savings of nearly £350 over the course of a year. Meanwhile, those on standard variable rate (SVR) mortgages might experience a reduction of about £13.87 per month, totaling around £170 in annual savings if lenders pass on the full cut.
Matt Thompson, head of sales at Chestertons, expressed optimism regarding the impact of the new rate: "With interest rates now at 4.25%, more rate cuts on the horizon and a number of lenders offering sub-4% mortgages, the property market will undoubtedly see an increase in buyer activity." He noted that first-time buyers, in particular, will be motivated to resume their search for homes.
Indeed, the market has already begun to react, with many lenders now offering mortgage deals under 4%. The average rate for a two-year fixed mortgage has dropped to 4.99%, down from 5.06% last week, while five-year fixed deals now average 5.24%, a decrease from 5.31%.
Tony Hall, Head of Business Development at Saffron for intermediaries, commented on the competitive landscape: "The recent price war among lenders was a clear indication that many had already factored in a potential base rate cut, so today’s news doesn’t come as a huge surprise." He added that the market is seeing more competitively priced deals across the board, which is encouraging for buyers of all types.
As the Bank of England's rate cut takes effect, the Financial Conduct Authority (FCA) is also stepping in to make the mortgage process easier for borrowers. A formal consultation will begin on May 12, which aims to simplify the rules surrounding mortgage lending, making it faster and cheaper for individuals to secure home loans.
Alpa Bhakta, CEO of Butterfield Mortgages Limited, highlighted the timing of the cut, stating, "The Bank of England’s second rate cut of the year comes at an ideal time. Activity levels in the prime central London market improved steadily throughout Q1, and with borrowing costs remaining the most significant driver of sales, today’s reduction should further reinforce the momentum and confidence permeating the property sector."
Looking ahead, experts predict that the Bank of England may implement two to three more rate cuts in 2025, potentially lowering the base rate to around 3.75% by the end of the year. This forecast is echoed by Tim Parkes, CEO of RAW Capital Partners, who stated, "The broader expectation is still that there could be as many as four more base rate cuts from the Bank’s five remaining meetings this year."
Sarah Thompson, Managing Director at Mortgage Scout, noted the increase in remortgaging activity, reporting a 34% rise in searches for remortgaging in Q1 of 2025. She emphasized the importance of the rate cut for borrowers, saying, "The decision to cut the base rate today is a timely and much-needed boost for borrowers. After a prolonged period of high interest rates, this shift should help ease affordability pressures and unlock more movement from first-time buyers and homeowners."
The sentiment in the market is further supported by the fact that around 1.8 million fixed-rate mortgages are set to mature by the end of 2025. This could lead to a surge in demand for remortgaging as borrowers look to take advantage of the lower rates.
Darrell Walker, Group Sales Director at Chetwood Bank, expressed confidence in the market's response to the rate cut, stating, "As borrowing costs ease, we expect to see investor activity increase – particularly as the data so far this year has pointed towards a stable and growing market."
However, not all experts are optimistic about immediate effects. Alan Davison, Chief Commercial Officer of Afin Bank, cautioned that while the rate cut is positive, it may not immediately trigger a surge in mortgage demand. He pointed out that Nationwide recently reported a 0.6% drop in house price growth in April, suggesting that consumer confidence remains fragile.
Simon Capp, Head of Residential Sales at British Land, noted that improved mortgage affordability could motivate some buyers who have been hesitant to enter the market. He stated, "Today’s decision will hopefully help to stimulate the housing market and provide wider economic benefit for UK Plc as homebuyers purchase additional goods and services as part of the home moving process."
Adrian MacDiarmid, Head of Mortgage Lender Relations at Barratt Redrow Developments, pointed out that prospective homebuyers might be able to borrow up to six times their income by opting for a long-term fixed-rate mortgage. He mentioned that Barratt Redrow offers a Key Worker Scheme that enables essential workers to receive up to £15,000 towards their deposit.
Overall, the Bank of England's decision to cut interest rates is seen as a pivotal moment for the UK housing market, with many stakeholders anticipating a shift back in favor of borrowers. As the market adjusts to these changes, it remains to be seen how quickly lenders will respond and how borrowers will navigate the evolving landscape.
