The MPC said that CPI inflation was 2.5% in 2024 Q4 and while ‘domestic inflationary pressures are moderating, they remain somewhat elevated’.
It added that it would take a gradual and careful approach to any further rate cuts.
David Hollingworth, associate director at L&C Mortgages said: “The decision to cut by one quarter of a percentage point was expected but mortgage borrowers will be buoyed by the fact that the decision was split, with two members of the Committee in favour of a deeper cut.
“Mortgage rates are significantly better than they were during some of the highly volatile periods of the last couple of years but have bobbed up and down, as markets have been hesitant in how quickly they expect rates to come down.
“The better-than-expected inflation data has calmed nerves and that’s seen an easing back in rate projections, which has already helped some, including Barclays, Halifax and Coventry BS, to pass improvements through in fixed rates this week.”
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What the cut means for existing mortgage borrowers?
If you have an existing fixed rate mortgage, you won’t be affected by interest rate movements until the end of your agreed fixed period, so today’s announcement won’t impact your repayments.
If you have a tracker mortgage, your pay rate should fall by 0.25 percentage points in the next month. According to L&C Mortgages, this could mean a borrower with a typical £200k 25-year repayment mortgage could see payments fall by £29 per month.
If your mortgage is variable – such as a discounted rate, a capped rate or you are on your lender’s standard variable rate – your rate may fall in the coming weeks, although this is at your lender’s discretion and it may not be by the full 0.25 percentage points.
What about new deals?
If you are a looking for a new mortgage – either to buy a property or because you are one of the 1.8m borrowers with a mortgage deal ending this year, you will be hopeful for lower rates on new deals.
In fact, some lenders got ahead of the announcement, cutting rates cuts in the last week. Matt Smith, mortgage expert at Rightmove said: “Some of the major lenders have cut rates in recent days, and if the Base Rate continues to follow the expected downward trajectory in 2025, there will be some headroom for lenders to continue to slowly reduce their pricing.”
Sarah Coles, head of personal finance at Hargreaves Lansdown, added: “For those looking for a new fixed rate, it’s not going to move the dial significantly overnight, because the market had already largely priced this in.
“Right now, Moneyfacts data shows the average two-year fixed rate mortgage has inched up from 5.48% at the start of the year to 5.52%. It may inch down again in the coming days, but it’s not going to bring a wave of relief for anyone set to remortgage in the coming weeks and months.”
