Homeowners across the UK breathed a sigh of relief on Thursday as the Bank of England cut its base rate to 3.75%. This move, the sixth reduction since the current government took power, is widely seen as a pre-Christmas boost designed to reinvigorate the property market and ease the monthly burden on millions of mortgage holders.
The cut comes at a critical time. High interest rates have dampened buyer demand and stalled property prices for much of the year. With borrowing costs now on a “gradual path downward,” according to Governor Andrew Bailey, analysts expect to see a rekindling of confidence among buyers. The Chancellor, Rachel Reeves, described the move as “good news for families with mortgages,” emphasizing the speed at which rates are now falling.
However, the relief is not without its caveats. The vote to cut was incredibly tight, at 5-4, indicating that the Bank is not entirely comfortable with the decision. Dissenting members warned that cutting too fast could reignite inflation, which would eventually force mortgage rates back up. This uncertainty led Bailey to warn that future cuts are “closer calls,” suggesting borrowers shouldn’t bank on rates plummeting to near-zero anytime soon.
The broader economic picture also plays a role in the housing market’s future. With the economy shrinking by 0.1% in October and wage growth slowing, affordability remains a key issue. While lower rates help, they don’t solve the problem of stagnant real wages or the high cost of living that makes saving for a deposit difficult for first-time buyers.
Nevertheless, for those on variable-rate trackers, the savings are immediate. For those looking to remortgage in the new year, the fixed-rate deals are likely to look more attractive than they have in months. The Bank has cracked the door open for a housing recovery; it remains to be seen if buyers will walk through it in 2026.