UK interest rates cut to lowest for two years

The Bank of England has voted to reduce the Base Rate by 0.25% for the second time this year, taking it to 4.25%. Base Rate was held at 4.5% in March after it was cut by 0.25% in February.

The Bank meets every six weeks to decide what should happen to interest rates, with the aim of keeping inflation to its target and keeping the wider economy healthy. Inflation is at 2.6%, which is still above the 2% target the government sets for the Bank.

The financial markets have been widely expecting a cut to interest rates this week, as continuing to hold rates could have a negative knock-on effect on economic growth, impacting businesses and households further down the line.

What’s happened to mortgage rates recently?

Mortgage rates have continued to come down slowly in recent weeks. The average rate for a 2-year fixed rate mortgage has fallen by 0.05% to 4.64% compared to a week ago, while the average rate 5-year fixed rate is now 4.60%.

What does the Base Rate reduction mean for my current mortgage?

Changes to the Bank’s Base Rate can impact how much interest you’ll pay on loans, including mortgages. If you’re on a fixed-rate deal, your monthly payments won’t change until the end of your deal. And if you’re on a tracker mortgage, or a variable rate mortgage that follows Base Rate changes, this month’s Base Rate reduction will mean your monthly payments will take on this drop.

If you’re coming to the end of your fixed-rate mortgage soon, you’ve probably already started to think about the rate you’ll be offered on your next deal.

If you’re thinking of moving home soon, a good way to find out how much you could borrow is to use a Mortgage Calculator or Remortgage Calculator. You can get a personalised result by applying for a Mortgage in Principle, which will take you one step closer to a mortgage offer.

What could happen next?

The Bank of England’s Monetary Policy Committee meets every six weeks to discuss and vote on whether interest rates should go up or down, or stay the same.

History has shown that after interest rates have increased over time, they have remained flat before starting to come down. So, while we’re now seeing a gradual downward curve, it’s extremely unlikely that rates will drop back to the historic lows we saw back in 2021.

The financial markets have been forecasting two-to-three more possible cuts to Base Rate in 2025. So, we could see it fall to 3.75% or further by the end of the year. Though as always, this could change depending on what happens in the broader economic environment.

The next decision on interest rates will be announced at midday on 19 June 2025.

To find out how much your home in Basingstoke or the surrounding villages might now be worth try Randalls Residential Estate Agents in Basingstoke free online valuation FREE INSTANT ONLINE VALUATION 

Alternatively give Simon or Ben at Randalls Residential Estate Agents in Basingstoke a call on 01256 345635 or email [email protected].