The Bank of England has cut the base rate to 4%, its lowest level in more than two years. This small 0.25% drop might not seem like much, but it could affect everything from your mortgage payments to housing market activity.
So, why was the rate cut, what does it mean for borrowers, and could it signal a bigger shift in the UK economy? Let’s break it down in plain English.
What Is the Base Rate and Why Does It Matter?
The base rate (also called the bank rate or interest rate) is the interest rate the Bank of England charges commercial banks when they borrow money.
This rate is important because:
- It influences how much banks charge borrowers for mortgages, loans, and credit cards.
- Lower rates often make borrowing cheaper, which can boost spending and support the housing market.
Why Has the Bank of England Cut the Rate?
The decision comes as the UK continues to fight stubborn inflation.
According to the Office for National Statistics (ONS), CPI inflation was:
| Month 2025 | Inflation Rate |
|---|---|
| March | 2.6% |
| April | 3.5% |
| May | 3.4% |
| June | 3.6% |
The April spike was mainly due to higher water, energy, and transport costs.
While inflation is still above the Bank’s 2% target, the Monetary Policy Committee (MPC) voted 5–4 in favour of a rate cut — showing a cautious move towards supporting economic growth without letting inflation rise too fast.
What Could Happen Next?
Many analysts believe there could be another cut by the end of 2025, possibly in November, which might take the rate to 3.75%.
However, with inflation ticking upward in June, the Bank of England is likely to move carefully to avoid triggering another cost-of-living surge.
How Will This Affect Your Mortgage?
- Tracker mortgages → These follow the base rate, so payments should drop almost immediately.
- Standard variable rate (SVR) mortgages → Payments may go down soon, depending on your lender.
- Fixed-rate mortgages → If you’re locked in, your payments won’t change until your deal ends — but new deals could become slightly cheaper.
Expert View
Richard Donnell, Executive Director at Zoopla, explains:
“While today’s cut is welcome, it’s unlikely to make a big difference to mortgage costs in the short term because fixed rates already reflect expected future cuts. But improved affordability rules mean buyers can now borrow about 20% more, which is helping keep the market active.”
Impact on the Housing Market
Recent data from Zoopla shows:
- Buyer demand → Up 11% compared to last year.
- Sales agreed → Up 8%, showing more people are moving forward with purchases.
- House prices → Up 1.3% year-on-year, a steady increase rather than a sharp spike.
- Homes for sale → The most in seven years, giving buyers more choice.
Lower interest rates can boost buyer confidence and may help first-time buyers who were priced out during higher rate periods.
What Should You Do Now If You’re a Buyer or Homeowner?
- Check mortgage deals now — lenders are competing for business.
- Speak to a broker — they can find offers you might not see yourself.
- If you’re on a tracker — enjoy the immediate savings, but keep an eye on future rate moves.
- If you’re on a fixed rate — start researching now if your term is ending within 6 months.
FAQs
1. Will my mortgage payments go down?
If you have a tracker or SVR mortgage, yes — usually within weeks. Fixed rates will only change when your current deal ends.
2. Could rates go even lower?
Possibly. Another cut is expected later in 2025, but it depends on inflation trends.
3. Will house prices rise?
Not necessarily in the short term. More buyers may enter the market, but the large supply of homes should keep prices steady.
The Bottom Line
The Bank of England’s decision to cut the base rate to 4% is a cautious but positive move for the economy and the housing market.
While it may not drastically lower mortgage costs right now, it signals a shift towards more affordable borrowing and stronger market confidence — good news for first-time buyers, movers, and investors alike.
If you’re planning a move or thinking about remortgaging, now could be the right time to explore your options and secure a competitive deal.
