November, 2024
This is the second rate cut in 2024, following a reduction from 5.25% in August.
The base rate is a crucial financial metric, influencing mortgage rates and savings returns across the country. But what does this mean for homeowners, mortgage borrowers, and savers in the UK? Let’s break it down in detail.
The Bank of England uses the base rate to control inflation, targeting a rate of 2%. With inflation dropping to 1.7% in September 2024—its lowest since 2021—the Bank’s Monetary Policy Committee (MPC) decided to lower the base rate to 4.75%. This cut is designed to support economic growth and keep inflation under control as prices stabilise.
Looking ahead, there’s uncertainty about further cuts. The Office for Budget Responsibility (OBR) predicts inflation could rise again to 2.6% in 2025, potentially due to government spending and tax changes. Some experts suggest that future rate cuts may slow, with the base rate expected to reach around 3.5% by early 2026.
The base rate reduction can impact your monthly mortgage payments, depending on the type of mortgage you have. Here’s what UK homeowners need to know:
If you’re on a fixed-rate mortgage, your monthly payments won’t change immediately, as your rate is locked in. However, with your deal ending soon, it’s wise to start comparing new mortgage offers. When a fixed deal ends, borrowers typically move to their lender’s standard variable rate (SVR), which is often higher. Start reviewing new deals three to six months before your current term expires.
For those on tracker mortgages, payments will automatically drop as they track the base rate. This means that within a month or two, your monthly payments should decrease.
If you’re on an SVR mortgage after a fixed-rate deal has ended, you may see a decrease in your interest rate, though SVR changes vary by lender. SVRs are typically higher, so consider switching to a fixed or tracker deal if you can secure a better rate.
For savers, lower base rates mean reduced interest returns on savings accounts. It’s a good time to review your savings and consider options like high-yield savings accounts or fixed-rate bonds to maximise your returns. With rates dropping, securing the best available interest is crucial for UK savers.
