The Bank of England has cut interest rates from 4.75% to 4.5%; despite inflation remaining at 2.5%, 0.5% above the current target of 2%. An ‘unexpected’ fall in the December inflation figures, from 2.6% to 2.5%, the first fall in three months, had prompted commentators to suggest an interest rate cut could come earlier than expected.
The cut comes amid general positivity in the property market following a strong start to 2025. The recently published House Price Index from Zoopla suggests the first four weeks of January have been the busiest for three years with buyer demand up 13% and 10% more homes for sale. The latest weekly mortgage tracker from Rightmove suggests lenders are beginning to cut mortgage rates with the average rates for two year mortgage down a touch to 4.98% and five year mortgages down to 4.78%. Data from mortgage advisor portal Twenty7tec show a sizeable rise in mortgage searches in January, up 85% in January 2025 against December 2024.
After running at 5.25% from August 2023, in August 2024 the Bank of England made its first cut in August 2024 to 5%, before a further cut in November 2024 to 4.75%. Today (6th February) a vote of seven to two in the Monetary Policy Committee voted in favour of interest rate cuts. And the Bank of England commentary suggested some members were in favour of a higher rates cut of 0.5% prompting speculation we could see further rates reductions sooner rather than later.
Industry Reaction
Nick Hale, CEO of Movera:
“The Bank of England’s decision to lower the base rate marks a positive step for the mortgage and property markets, offering much-needed relief to borrowers after a prolonged period of high rates. While this cut could help boost confidence, the extent of its impact will depend on how quickly lenders pass on savings and whether further reductions follow in the coming months.
“For brokers and conveyancers, this shift may encourage more homebuyers and movers to re-enter the market, alongside continued demand in the remortgage sector. However, with affordability still a key concern, speed and efficiency in transactions will be crucial to helping borrowers secure the best available deals. The ONS inflation announcement later this month will provide further clarity on the long-term outlook, shaping expectations around future rate movements.
“We are focused on supporting the industry with digital solutions that make the homebuying and remortgaging process as smooth as possible. Whether rates fall further or stabilise, ensuring transactions are fast and efficient will be key to keeping the market moving.”
Nathan Emerson, CEO of Propertymark,
“Despite widespread uncertainty and the Bank of England expecting inflation rates to increase to 2.8% by the third quarter of 2025 before easing again, today’s announcement comes as welcome news for many.
“It’s now likely that mortgage borrowing takes the same path and dips slightly which will, in turn, help ease the strain on people’s finances and improve their chances of homeownership. This extra boost in affordability and confidence is needed, and we look forward to hopefully seeing new and improved mortgage products enter the market over the coming weeks.”
Iain McKenzie, CEO of The Guild of Property Professionals:
“While inflation is still stubbornly sitting above the target, it was not enough to keep the Bank of England from cutting the rate. Today’s decision, as well as further rate cuts expected throughout 2025 should help to improve affordability, which in turn will attract a broader range of buyers to the market.
“Rates are forecast to drop to around 3.75% by the end of the year. Although much of this has already been priced into fixed mortgages, there could be some further downward shifts in these rates. This would be welcomed by those looking to move or those who will be remortgaging this year.
“While changes to Stamp Duty thresholds will have an impact on the market, it is expected that we will see a modest improvement for both the economy and the housing market in 2025. The economic backdrop has set the stage for steady market activity and moderate price growth throughout.”
One Response
James Burgess, Head of Commercial and insolvency expert at Atradius UK, says:
“Today’s interest rate cut to 4.5% brings much-needed relief for businesses and consumers, defying expectations that rates would remain high in line with the Budget. This move sets a positive economic tone for 2025.
“For businesses, the reduction fuels confidence, with potential benefits including increased spending, job creation, and greater access to more affordable borrowing, particularly in the mortgage market.
“However, while this is a win for the economy, global uncertainties and the fallout from Reeves’ controversial growth speech last month underscore the need for strategic financial planning. To remain resilient, businesses should focus on liquidity, diversify supply chains, and secure trade credit insurance to capitalise on emerging opportunities.”