Early Christmas present for homeowners as Bank of England cuts base rate
After the Bank of England reduced the base interest rate from 4 percent to 3.75 percent on Thursday, homeowners with variable rate mortgages are expected to see a decrease in their monthly payments.
The move is being interpreted by the government as a validation of Rachel Reeves’ Budget strategy after she increased taxes by £36bn.
However, the Bank also warned about inflation due to low economic growth.
Analysis shows the average homeowner with a tracker mortgage could save almost £29 each month after a quarter point reduction. Based on typical outstanding balances, subsequent borrowers’ repayments will fall by £28.77, UK Finance said.
Meanwhile, those with standard variable rate (SVR) mortgages are expected to save £13.88 a month, assuming their lender fully covers the interest rate deduction.
Lenders set their own SVRs but in practice they usually follow the movements of the Bank of England’s base rate.
According to UK Finance, around 533,000 homeowner tracker mortgages and around 509,000 SVR deals were outstanding in June 2025.
Keir Starmer used X (formerly Twitter) to celebrate the sixth rate cut since he became prime minister just over 18 months ago.
He said: “We’ve delivered the sixth rate cut since the election. This is welcome news for working families across the country. We’re doing more to combat the cost of living of the crisis: expanding free breakfast clubs, cutting £150 from the average energy bill next year and freezing rail fares. I know there are families still struggling; we’re taking action to cut costs.”
Chancellor Rachel Reeves, whose Budget paved the way for cuts last month, added: “Today’s rate cut is the sixth since the election, the fastest cut in 17 years, and is good news for families with mortgages and businesses with loans.”
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But Conservative Shadow Chancellor Sir Mel Stride said: “The Chancellor claims today’s rate cut is a sign of success – but let’s look at what the Bank of England actually said. The Bank is increasingly concerned about the ‘medium-term inflation risk from weak demand’ due to rising unemployment and low growth.”
While the outage won’t immediately impact homeowners on fixed-rate mortgages, it could be good news for many of those whose deals are coming to an end soon.
Around 1.8 million fixed-rate transactions are expected to close in 2026, according to figures from UK Finance.
Property professionals expect the new year to start with a “bang” as lenders try to attract borrowers and activity returns to the housing market post-Christmas.
David Hollingworth, associate director at mortgage broker L&C Mortgages, said: “Fixed rates have improved significantly, improving options for those still nearing the end of the extremely low five-year fixed rate.
“Lenders are competing intensely and there may be more room for lenders to improve interest rates in the new year as they will want to get off to a good start.
“Although rates are already pricing in further rate cuts next year, the market still has expectations that rates will fall further.”
Iain McKenzie, chief executive of The Guild of Property Professionals, said: “This feels like an early Christmas present for buyers and conveyancers looking forward to the new year.”
Andrew Montlake, managing director of Coreco Mortgage Brokers, said: “Borrowers will be celebrating early Christmas cheer.”
Nathan Emerson, managing director of property specialist community Propertymark, said: “There is real potential for lenders to support first-time buyers with more focused products to help stimulate the market in the coming weeks and months.”
OnTheMarket chief executive Jason Tebb said: “With the budget now gone the atmosphere of uncertainty has disappeared and this rate cut provides a real pre-Christmas boost for the housing market which bodes well for activity in the new year.”
Ed Monk, retirement and investment expert at Fidelity International, said: “A rate cut by the end of the year is an early holiday gift for borrowers and there is reason to hope more cuts will come in 2026.”
Matt Smith, mortgage expert at Rightmove, said: “Financial markets and mortgage lenders have been expecting today’s (Bank of England base rate) cut for some time and so responded with an early cut in mortgage rates in December to round out the year.”
Fine & Country managing director Nicky Stevenson said: “Lower rates, combined with a more positive budget environment, are likely to translate into stronger inquiries and transactions in the new year.”
Mark Manning, managing director of Northern Estate Agegency Group, said: “I expect 2026 to start with a flurry of activity as mortgage rates become even more competitive and people use the festive period to plan their next move.”
The fall in the base rate could also mean poorer returns for some savers, who must also bear in mind the corrosive effect of inflation on their cash.
Figures published by the Office for National Statistics (ONS) earlier this week showed Consumer Price Index (CPI) inflation slowed to 3.2% in November, from 3.6% in October.
Paul Broadhead, Head of Mortgage and Housing Policy at the Building Societies Association, said: “Falling rates, combined with expected changes to savings tax, will be felt by those working hard to build financial resilience and save for their future, including those saving for their first home deposit.”
According to moneyfactscompare.co.uk, the average easy access savings rate in the market fell from 2.96% in December 2024 to 2.54% in December 2025, while the average easy access Isa rate in the market fell from 3.16% to 2.73% last year.
In the same period, the average notified account rate in the market decreased from 4.10 percent to 3.50 percent, and the average notified account rate decreased from 3.97 percent to 3.40 percent.
