Mortgage Rates: Base Rate falls to 4.25%

The Bank of England's Monetary Policy Committee meets monthly to decide on the Bank Base Rate (BBR). These decisions - whether to increase, decrease, or hold steady - influence borrowing costs and savings returns throughout the UK.

From 2000 to 2008, the BBR fluctuated between 3.5% and 6%. The 2007 Credit Crunch led to a sharp decrease, with the rate falling to 2% in 2008 and reaching a low of 0.5% in 2009, and even 0.1% during the pandemic. These low rates aimed to boost the economy and make homeownership more accessible.

The BBR impacts mortgage rates because it influences how much lenders pay to borrow funds. This, in turn, affects the interest rates they offer on mortgages and loans, as well as the returns for savers.

Why Track Bank Base Rate Movements?

If you're buying property or investing, keeping an eye on the BBR is crucial. Its stability, upward or downward trends can directly impact your mortgage expenses, both now and in the future.

Bank of England data shows the BBR at a low of 0.10% in March 2020 and a high of 5.25% in August 2023.

Historically, rising rates have slowed down the property market, sometimes causing prices to fall. Conversely, decreasing rates often stimulated market activity and increased property values.

Before 2010, roughly half of mortgages were variable. Rate changes quickly affected homeowners, leading to potential negative equity and repossessions during rapid increases.

However, since 2019 approximately 96% of borrowers have opted for fixed-rate mortgages, with 45% fixing for five years since 2017.

This has provided stability, protecting homeowners from sudden rate hikes, and buffering the property market from forced sales.

Impact on First-Time Buyers

Since 2014, first-time buyers have been required to take out repayment mortgages and undergo affordability assessments at average rates.

This approach ensures they build equity sooner and reduces the risk of negative equity if prices decline. Consequently, when rates rose to 5.25% in 2023, average property prices only fell by about 5%—significantly less than in past recessions.

What's the Future Outlook for the BBR?

Predicting future rates isn't easy, but current forecasts suggest a potential decrease from the current 4.5% (May 2025) to as low as 3.5% by the end of the year. Here’s what leading financial institutions are projecting:

• Morgan Stanley, Deutsche Bank: 3.5%
• Capital Economics, International Monetary Fund (IMF): 3.75%

With potential rate decreases on the horizon, delaying a purchase or remortgage might seem wise, however there are other considerations you need to think about.

In many areas the supply of properties is exceeding buyer demand, especially after the end of the Stamp Duty holiday.

While supply is high there are more options available to buyers, which could make it possible to secure your ideal property, or an investment for the future, that may not be available in six months time, or could be more expensive.

Furthermore, it may not be your decision to make. If a property that fits your needs is available now, and you are able to finance it, or your mortgage is due for renewal, or you need to move due to personal circumstances.

Consulting with a qualified mortgage broker can offer tailored guidance to help you decide the best course of action for your unique financial situation.

Our financial partners, Embrace Financial Services, provide access to experienced mortgage advisors across the UK. They can offer expert advice and access to a range of mortgage options to ensure you make informed decisions that align with your goals.

Speak with a financial adviser