Interest rates fall even further – here’s what it could mean for you

Interest rates have fallen for a third consecutive time after the Bank of England decided the economy was healthy enough for another cut.

The Bank’s governor Andrew Bailey announced earlier this afternoon that its Monetary Policy Committee had decided on a reduction of 0.25%, bringing the figure to 4.5%.

It marks another fall for the base rate after it peaked at 5.25% in autumn 2023 and stayed there until the following summer.

In the dramatic few years that followed the Covid lockdowns, the Bank increased interest rates 14 times in an effort to control inflation, causing alarm for homeowners.

The latest decision means repayments on many mortgages will fall – but it could also result in less welcome news for savers.

What does this mean for mortgages?

If you’ve got a tracker mortgage, meaning one that’s tied to the base rate decided by the Bank of England, your repayments will go down each month.

You may see a reduction if you have a standard variable rate (SVR) mortgage, too. Even though these deals are decided by your lender, they often also move according to the base rate.

However, you’ll have no such luck if you opted for a fixed-rate mortgage, since you’ve agreed to pay the same amount for a certain amount of time.

If you’re looking to remortgage, there’s a strong chance the new fixed rate will be higher than the one you were on originally, since the base rate is still at its fourth highest level for the past 15 years.

Ben Thompson, Deputy CEO, Mortgage Advice Bureau, said: ‘A cut in the base rate is exactly what the housing market needed. This will give buyers confidence and should help ease the minds of many who are due to renew their mortgage in the coming months.

‘The Bank of England has taken the first opportunity it has to cut rates, and this could mean mortgage rates begin to decline as we head into the busy spring period. ”

Chief executive of UKHospital Kate Nicholls said the move would also be welcomed by businesses paying back loans from the Covid pandemic.

She said: ‘Practically for hospitality businesses, it will provide some much-needed relief for those still paying back Covid loans but we urge the government to allow more flexibility over the repayment periods for those loans to further ease the pressure on venues.’

What does this mean for savings?

Savers have had a decent time in the past few months, when inflation was low but interest rates remained high.

That’s because banks tend to look at the base rate when deciding their own savings rates, and lower inflation meant people could stash more money away with a higher return.

But it’s now likely that those rates will also fall following today’s announcement.

So, now is a good time to go hunting for some decent deals if you’re looking for somewhere to place your savings.

Jonny Black, Chief Commercial & Strategy Officer at abrdn adviser, said: ‘For savers, it’s a reminder to reassess how and where their money is working hardest.

‘Whether it’s planning a major financial decision or looking to adjust a regular savings strategy, now is a good time for people to review their options including whether non-cash alternatives are suitable for them.’

Trading 212 offers a 5.16% cash ISA, with Chip following closely behind with a 5.15% option. More information is available on MoneySavingExpert here.

How has the interest rate changed over the last year?

This time last year, the Bank of England interest rate was at 5.25%- its highest point since the beginning of the financial crisis in 2007.

That only started to change in the summer, with a 0.25% reduction – the first cut in more than four years – coming in August.

The rate fell another 0.25% in November, as the Bank became increasingly confident that inflation was under control.

Bailey said the Bank would be taking ‘a gradual and careful approach to reducing rates further’ for the rest of 2025.

When is the next interest rate review?

The next meeting of the Bank’s Monetary Policy Committee, when the interest rate will be reviewed, is March 20.

However, no change is guaranteed as the members may decide the keep the rate at the same level.

Get in touch with our news team by emailing us at [email protected].

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