‘Much-needed confidence boost’ for home buyers as mortgage rates fall

Households on mortgages which directly track the Bank of England base rate will see their monthly payments fall by nearly £29 on average, following Thursday’s base rate cut.

Based on average outstanding balances, the typical borrower on a tracker deal will see their monthly payments decrease by £28.98, according to figures from banking and finance industry body UK Finance.

Some homeowners with a mortgage will see their payments reduce after the Bank of England cut interest rates on Thursday from 4.75% to 4.5%. It follows two reductions made last year.

The average borrower on a standard variable rate (SVR) will see their monthly payments decrease by £17.17, assuming that the base rate reduction is passed onto them in full. The rate on SVR mortgages is set by individual lenders.

The bulk of homeowners with a mortgage are on fixed-rate deals and will not see any immediate change to their payments. Around 1.8 million fixed-rate deals are due to end this year.

The cut could provide some relief to people looking to remortgage as well as first-time buyers, although experts suggested that, while some lenders could cut their rates, others may have already “priced in” Thursday’s cut.

Yorkshire Building Society announced rate reductions across its mortgage range by up to 0.31 percentage points from Thursday, shortly before the Bank confirmed its decision.

Jonathan Handford, managing director at estate agent group Fine & Country, said: “Today’s announcement marks a pivotal moment for the housing market and, more importantly, a significant step forward for first-time buyers on the path to homeownership.

“The first interest rate cut of 2025 paints an optimistic picture for the year ahead and should provide a much-needed confidence boost for prospective buyers. Lower rates are likely to push lenders to reduce mortgage costs, and have the potential to trigger a ‘rate war’, with banks and lenders slashing rates to remain competitive.”

Simon Gerrard, managing director at Martyn Gerrard Estate Agents, said that for some home buyers, any savings from the base rate being cut could be offset by stamp duty discounts becoming less generous from April, when the nil-rate band for first-time buyers will shrink from £425,000 to £300,000. Stamp duty applies in England and Northern Ireland.

He said: “It’s a highly positive sign for the market to see base rates coming down, though many mortgage lenders may have already anticipated this cut and adjusted their rates accordingly.

“Crucially, the direction of travel over the medium-term is one of rates continuing to fall – though we’re unlikely to return to the ultra-low interest rates of the pandemic era.

“Even if buyers don’t benefit that much from this particular cut, the momentum is firmly on their side and mortgage deals are only becoming more affordable.”

Kevin Roberts, managing director at Legal & General Mortgage Services, said: “Today’s base rate decision will be encouraging news for home buyers, and some lenders have already priced this change into their mortgage rates over the past few days.

“Our broker data has shown a significant rise in first-time buyers searching for mortgages in the past year, and this latest rate reduction will give confidence to those looking to step onto the property ladder.”

Nathan Emerson, chief executive of property professionals’ body Propertymark, said: “This extra boost in affordability and confidence is needed, and we look forward to hopefully seeing new and improved mortgage products enter the market over the coming weeks.”

Lucian Cook, head of residential research at Savills, said the cut would make it “a little easier” for borrowers to meet lenders’ affordability tests.

He said: “Further rate cuts over the course of the year should widen the pool of buyers and increase their buying power, allowing a gradual recovery in house prices and transaction levels.”

Paul Broadhead, head of mortgage and housing policy at the Building Societies Association (BSA), said its research indicated that around two-thirds of people considered the biggest barriers to homeownership to be the affordability of monthly mortgage repayments and raising a deposit.

He said: “Bank rate cuts alone will not ease affordability.”

Frances Haque, chief economist at Santander UK, said: “The cut to the Bank of England base rate will come as some light relief to those homeowners with fixed-rate mortgages maturing this year, and should see a boost to overall household confidence, following a period of decline at the end of 2024.

“While this is a positive story overall, with rates sitting lower than they were two years ago, borrowers coming off five-year fixed terms will still be moving to rates significantly higher than their current rate.

“With house prices set to continue to rise, albeit at a slower pace, and mortgage approvals remaining strong, spurred on by the upcoming change to stamp duty, we are however looking towards a more buoyant housing market as we progress through the year.

“Our forecasts are still pointing to a further three cuts this year – with the next to come in May, allowing the Bank of England to strike a balance between containing inflation, while boosting economic growth, and with that, supporting household confidence and the mortgage market.”