In early 2025, the Bank of England cut its base rate to 4.5%, and the housing market was expected to be the beneficiary — cheaper mortgages, rising demand, steady price growth. Eighteen months later, the base rate sits lower still at 3.75%, yet average five-year fixed mortgage rates have breached 6% for the first time in three years. Here is what actually happened to the market the rate cuts were supposed to help.
Correction note (2 November 2026): An earlier version of this article was written in March 2025 and framed base rate reductions as an ongoing boost to the housing market — with “continued rate cuts” expected and five-year fixed rates at 4.80%. Those expectations did not play out. Bank Rate reached 3.75% and stalled, while fixed mortgage rates climbed above 6% on bond-market pressure. This article has been rewritten with the verified 2026 data; the 2025 material below is kept as history.
What happened after the March 2025 cut
The facts of early 2025 were real: the Bank had lowered Bank Rate multiple times over the preceding year, reaching 4.5% in February 2025 — a cumulative 0.75 percentage-point reduction since mid-2024. Inflation was close to the 2% target and monetary easing was the policy direction.
More cuts followed: May 2025 brought 4.25%, August brought 4.0%, and November brought 3.75%. The December 2025 meeting held the rate — and it has stayed at 3.75% ever since.
Why cheaper base rates did not mean cheaper mortgages
This is the central lesson of the episode, and the one the old analysis got wrong. Fixed-rate mortgages are not priced off Bank Rate directly. They are priced off swap rates and gilt yields in the bond market — what it costs lenders to fund long-term lending.
From spring 2025, geopolitical shocks — most significantly the US-Iran conflict — pushed bond yields sharply higher. The 30-year gilt yield briefly exceeded 6% in early October 2026, its highest since 1998. Lenders priced that funding cost into fixed deals regardless of where Bank Rate sat.
The numbers: on 30 October 2026, Moneyfacts put the average five-year fixed rate at 5.99% and the average two-year fix at 5.97% — the five-year at the 6% barrier for the first time in three years. That is a long way from the 4.80% quoted when this article was first written, and it happened while Bank Rate was at its lowest of the cycle.
What the market looks like now (verified October 2026 data)
- House prices: Nationwide reported annual growth of just 0.5% in October (£273,566 average) — the slowest since January 2024 — with prices flat on the month. Chief economist Robert Gardner noted surveyors report new buyer enquiries remain weak.
- Mortgage approvals: the Bank of England reported 53,443 approvals for house purchase in September — the lowest since December 2023, and the third consecutive monthly fall.
- Transactions: HMRC confirmed around 94,800 residential transactions in September, 4% lower than a year earlier.
- Stock: around 764,000 homes were on the market on 1 October 2026, up from 752,000 a year earlier — more choice for buyers, but also a sign demand is not absorbing supply.
- The outlook for repayments: the Office for Budget Responsibility warned this Budget week that mortgage payments are on course to reach their highest share of household income since 2009 over the next five years.
What the MPC decides next
The Monetary Policy Committee meets on Thursday 5 November — three days from now. Markets and most economists expect a quarter-point rise from 3.75% to 4% (54 of 63 economists in a mid-October Reuters poll), which would be the first rate increase in more than three years. Some traders are pricing further rises beyond that.
But the decision is not yet made, and this article does not assume its outcome. A hold would be a genuine surprise that could offer mortgage pricing a small reprieve; a hike would likely push fixed rates higher still. Either way, the 2025 lesson stands: Bank Rate alone does not set what buyers pay.
The honest counter-note: cuts are not a market medicine
Looking back, three assumptions of the old analysis need correcting:
- “Rate cuts lift demand automatically.” They can — but only if the cuts reach borrowers. When swap rates move against borrowers, as they did in 2025–26, the transmission breaks.
- “Lower rates mean rising prices.” House prices grew just 0.5% a year while Bank Rate fell 1.5 percentage points from its peak — because affordability is set by mortgage rates, not the policy rate.
- “Lenders pass on savings.” Trackers follow Bank Rate, but fixed-rate borrowers only benefit when markets cooperate. The 2025–26 episode is the textbook case of that distinction.
What to watch now
- Thursday 5 November: the Bank’s decision and Monetary Policy Report — the single biggest near-term driver of mortgage pricing.
- The lenders’ indices: Nationwide’s November figures and the next Rightmove index will show whether softness in asking prices is broadening into agreed sale prices.
- The 30 November Money and Credit release: the first read on whether September’s approvals slump was the start of a trend.
In the meantime, buyers can do the practical arithmetic themselves: our Affordability Calculator models what you can genuinely afford at current rates, the Mortgage Overpayment Calculator shows what overpayments do to a higher-rate deal, and the UK Home Buyer Toolkit brings every calculator together.
