Bank of England lowers base rate to 4.5% - How does it affect the UK property market?

February 7, 2025

In a widely anticipated move, the Bank of England’s Monetary Policy Committee (MCP) has voted to cut the base rate of interest for the third time in six months.

The previous cuts in August and November 2024 saw the base rate fall from 5.25% to 4.75%. Now, the latest cut this February has reduced that to 4.50% - the lowest it has been since June 2023.

Andrew Bailey, Governor of the Bank, said: “It will be welcome news to many that we have been able to cut interest rates again today.”

Furthermore, he confirmed speculation that further rate cuts are in the pipeline, saying: “We’ll be monitoring the UK economy and global developments very closely and taking a gradual and careful approach to reducing rates further.”

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What does the Bank of England's rate cut mean for mortgages?

The most immediate impact of the rate cut will be felt by many in the mortgage market. Firstly, tracker mortgages on a variable rate will start to become less expensive almost immediately following the most recent cut.

For example, one of the UK’s biggest lenders, Santander, has already confirmed that they will pass on the full rate cut to their variable-rate mortgage holders from the 3^rdof March. That means if you have a variable rate or are planning on getting one for a new mortgage, it will now be cheaper.

Secondly, the base rate of interest has a key effect on fixed-rate mortgages. Projected cuts are generally priced in by lenders before they happen, so yesterday’s announcement is a confirmation of what was expected.

The Guardian has reported on two instances of this in action. The Yorkshire Building Society has city interest rates on fixed-rate products “by up to 0.31%, with the biggest reductions for borrowers with a 40% deposit. Rates on its 90% mortgages were cut by up to 0.17%. After the cuts, a 75% two-year fixed-rate mortgage for remortgagers will cost 4.39%”.

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Will fixed-rate mortgages be cheaper in the future?

Mortgage lenders have already reduced their fixed rates, but they have also priced in a further two cuts to come later this year. On that basis, we can expect the base rate of interest to fall to 4.0% and fixed-rate mortgages to head down to under 4.5% in some cases.

However, the details of today’s decision mean that even more cuts might be coming.

Two members of the MPC voted for an even larger cut to the base rate today of 50 basis points, or 0.50% in total. This came as a pleasant surprise to the market. Cuts were expected, but not votes for a cut that big. Furthermore, one of those who voted for an even bigger cut – Catherine Mann – has previously been seen as one of the more cautious members of the Committee.

If even those who have previously preached caution are voting for bigger rate cuts, the likelihood of further reductions in 2025 has increased. If that happens, mortgage rates will become even more favourable.

That will make the cost of buying UK investment property for sale even more affordable and increase the yield on investments for anyone looking to buy UK investment property.

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Value of savings will fall

The other side of the equation when the Bank of England cuts the base rate is that savings rates will go down with it. If you have got money in the bank, it will now be less valuable than it was last month and almost certainly less valuable than if you were to invest it.

Property is already a better long-term bet than stocks and shares, and it is certainly a more reliable growth prospect than savings. That will be doubly true when the base rate is cut further over the rest of 2025.

Furthermore, we are at the beginning of a new property cycle. UK house prices are high and expected to keep growing. Likewise, rents are going up, and demand for quality rented accommodation which offers a superior lifestyle is higher than ever.

Investing in UK buy to let property is therefore not just a better place to put your money now with savings rates reducing. It’s also a better bet for the future as returns continue to increase. If you invest now, you can enjoy the best of both worlds.

Want to learn more about the UK property market and the opportunities on offer? Contact our team of experts today to discover everything you need to know and start your investment journey.

Bank of England lowers base rate to 4.5% - How does it affect the UK property market?

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