The Bank of England has cut its base interest rate for the fourth time in the past year, lowering it from 4.75% to 4.25%. The announcement was made on May 8, 2025.
So, what does this mean for borrowers looking to mortgage a property?
Andrew Bailey, Governor of the Bank of England and Chair of the Monetary Policy Committee, noted that the slowdown in inflation is the main reason behind the cut.
While there’s speculation the rate could fall further to 4%, global economic uncertainties, particularly those stemming from new U.S. tariff policies may slow that initiative.
The Bank of England’s base rate influences the cost of borrowing and saving across the UK. It affects interest rates on loans and mortgages and is a key tool for managing inflation and economic stability.
But how does this decision impact mortgage borrowers and lenders alike?
For most borrowers, the effect will be minimal in the short term.
Approximately 7.1 million or nearly 85% of the UK’s 8.4 million residential mortgages are on fixed-rate deals, meaning monthly repayments will remain unchanged.
However, borrowers with base rate-tracker mortgages stand to benefit.
According to The Guardian, those on tracker deals could save around £28.97 per month.
Roughly 540,000 borrowers currently on their lender’s Standard Variable Rate (SVR) may see a slower or less certain impact, as these rates are set at the lender’s discretion and may not reflect BoE changes directly.
The rate cut could also trigger a “mortgage price war,” with banks and lenders offering increasingly competitive deals to attract new customers.
Many experts believe the move will stimulate property sales and create more favourable conditions for buyers.
Alpa Bhakta, CEO of Butterfield Mortgages, told IFA Magazine that the reduction should “reinforce confidence and momentum” in the property market, as borrowing costs remain one of the biggest factors influencing sales.
This shift could particularly benefit first-time buyers, unlocking more movement and opportunities by making larger loans more affordable, even without an increase in income.
There are already signs of renewed consumer confidence and improving affordability.
According to data from the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), the total value of new mortgage commitments rose by 4.9% in Q4 2024 compared to the previous quarter.
Meanwhile, the FCA also reported that at the end of Q4 2024, the total value of outstanding residential mortgage loans reached £1.678 Billion — the highest ever recorded since it began tracking mortgage lending.
These trends suggest that the BoE’s latest cut could help accelerate a broader recovery in the housing market.
Still, not everyone is convinced. A recent survey by the Homeowners’ Alliance found that over a third of UK adults expect mortgage rates to rise in the next 12 months — a sign that public confidence, while improving, remains fragile.
As the economic outlook continues to shift, borrowers would do well to monitor future rate decisions closely and assess their mortgage options accordingly.
