How the 4.5% base rate could shape the property market and your mortgage.

The Bank of England has cut the base rate by 0.25% and it now stands at 4.5%.

The Bank’s Monetary Policy Committee (MPC) voted by a majority of 7–2 to reduce the base rate by 0.25%, to 4.5%. Two members preferred to cut the rate by 0.5%, to 4.25%.

The MPC last met in December, when it voted by 6-3 to hold the base rate at 4.75%.

The base rate, also known as the ‘bank rate’ or the ‘interest rate’, is important because it influences the rates that lenders charge their borrowers for things like mortgages.

Why has the base rate been cut?

The Bank has been using the base rate as a way of taming inflation, which hit a recent peak of 11.1% in October 2022.

The Bank increased the base rate from 0.1% in late 2021, to 5.25% in August 2023. It then cut the rate twice last year, first in August and then again in November.

The good news is that inflation has recently dropped. The Consumer Prices Index (CPI), a key measure of inflation, stood at 2.5% in the year to December. While that’s still above the Bank’s 2% target, it’s edged down from 2.6% in the year to November. It’s the first decline in three months.

In its Monetary Policy Report today, the Bank said that inflation is “following a bumpy path”.

It explained: “We expect inflation to rise temporarily this year, to 3.7%, including because of higher energy prices. Inflation is expected to fall back again to the 2% target after that.

“We need to be confident that inflation will remain low and stable in a lasting way. The Monetary Policy Committee will decide carefully by how much and when it can cut interest rates.”

The report also warned that the economy “may not evolve as expected, including because there could be global shocks. For example, global trade tariffs or developments in the Middle East could impact some prices”.

Andrew Bailey, the Bank’s governor, took a cautious tone when the MPC held the base rate in December: “We think a gradual approach to future interest rate cuts remains right, but with the heightened uncertainty in the economy we can’t commit to when or by how much we will cut rates in the coming year,” he said at the time

What does the base rate cut mean for mortgage rates?

Borrowers with mortgages that track the base rate are set to see an almost immediate impact on their mortgage rates. Meanwhile borrowers on fixed-rate deals that expire soon are likely to see the lower base rate factored into new deals.

Richard Donnell, Executive Director of Zoopla, said: “Today’s cut to the base rate will provide a boost to market sentiment for home buyers, more than a boost to buying power.

“The path of base rates is already priced into fixed-rate mortgages, which account for the majority of new mortgages.

“It’s positive that 2025 is starting with lower mortgage rates than the last two years. The average five-year fixed rate at 75% LTV is 4.4% while a two-year fix is at 4.6% (according to Bank of England data).”

Hina Bhudia, partner, Knight Frank Finance, reacting to the Bank’s Money & Credit data on 30 January, said that mortgage rates have been largely steady during the early weeks of the year – though a handful of lenders did reprice a little higher during recent bond market volatility.

“That volatility has since eased and we do expect lenders to cut mortgage rates as soon as they are able to do so. They have fresh lending targets at the beginning of the year and are eager to build market share,” explained Bhudia.

“If the Bank of England does opt to cut the base rate as many as five times this year, as Morgan Stanley analysts predicted this week, borrowers shouldn’t be waiting long for a reprieve.”

In the past week, Barclays, Coventry Building Society, Yorkshire Building Society, Santander, TSB and Co-op have all cut mortgage rates, according to The Sun.

How could this impact the housing market more broadly?

Our latest House Price Index shows that the 2025 sales market has started off better than both 2024 and 2023. This bodes well for market activity throughout the rest of the year.

And today’s base rate decision has the potential to boost confidence and improve affordability, paving the way for more moves across the housing market.

“Greater stability in borrowing costs has brought more buyers and sellers back into the housing market having delayed moving decisions as rates spiked higher. The latest Zoopla data (to Sunday 4th February) shows a healthy supply of homes for sale and home buyer demand 9% higher than a year ago, with 11% more sales agreed,” explained Donnell.

“We expect average mortgage rates to remain in the 4-5% range over the year ahead. Lower base rates will support the wider economy which in turn, will support housing market activity where we expect 5% more housing sales over the year to 1.15m and average house price growth of 2.5%.”

Donnell added that the average mortgage rate for all outstanding mortgages has risen and now stands at 3.8% as borrowers refinance mortgages.

“The last of the ultra-low rate five-year fixes taken in 2021 will be refinancing in the next 18 months as the whole housing market sees mortgage rates resetting to current levels,” Donnell said.

Key takeaways

  • The Bank of England has cut the base rate by 0.25%. It now stands at 4.5%
  • The Bank’s Monetary Policy Committee (MPC) voted by a majority of 7–2 to reduce the base rate by 0.25%, to 4.5%.
  • The base rate, also known as the ‘bank rate’ or the ‘interest rate’, influences the rates that lenders charge their borrowers
  • Today’s decision comes after UK inflation fell to 2.5% in December. It was the first drop in the rate of inflation for three months