The Bank of England (BoE) has cut the base rate to 4.5%, marking its third reduction in six months. This comes as inflation cools but remains above target.
For those wondering “Are mortgage rates going down?”, the answer is yes – but slowly. The average two-year fixed mortgage now sits at 5.89%, while a five-year fixed deal is at 5.55%. In August 2024, these stood at 6.12% and 5.74% respectively.
If you’re looking for a self build mortgage orrenovation mortgage, these changes will lower your borrowing costs, but mortgage rate increases in previous years mean borrowing remains expensive compared to pre-2022 levels.
Why are mortgage rates going down?
When the BoE lowers interest rates, borrowing becomes cheaper, encouraging property investment and lending. However, inflation is still above the BoE’s 2% target, so mortgage lenders remain cautious.
Chancellor Rachel Reeves acknowledged the rate cut but warned of the lingering effects of past mortgage rate increases: “While today’s cut in interest rates will be welcome news, millions of families are still facing higher mortgage rates after the mini-budget.
"That is why this government is taking the difficult decisions now to fix the foundations of our economy after years of low growth, so we can rebuild Britain and make every part of our country better off.”
How are lenders responding?
Nationwide has confirmed it will adjust its mortgage rates from 1 March 2025:
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Tracker mortgage rates will decrease in line with the base rate.
Standard Mortgage Rate (SMR) will drop from 7.49% to 7.24%.
Base Mortgage Rate (BMR) will decrease from 6.75% to 6.50%.
Lloyds have also announced reductions and have given customers access to a mortgage rate change calculator to see how much they could save.
These reductions follow a period of mortgage rate increases over the past two years, offering some relief to homeowners and borrowers.
What does this mean for borrowers?
If you’re on a fixed-rate mortgage, your payments won’t change immediately. However, when your deal ends, you may have access to lower rates.
If you’re on a tracker or variable-rate mortgage, you’ll benefit immediately, as your repayments will decrease.
For those planning a self-build mortgage or renovation loan, these reductions could make borrowing slightly cheaper, but lenders remain cautious about further cuts.
Will mortgage rates continue to fall?
The big question remains: are mortgage rates going down further in 2025? While today’s cut is a positive sign, experts warn that lenders are still wary for the future.
Matt Smith, Rightmove’s mortgage expert, said: “This sets us up for hopefully further cuts to come, and when we have seen further reductions to the base rate, people should really start to see the impact.”
However, Robert Sadler, Vice President of Real Estate at Excellion Capital, cautioned: “This rate reduction takes us one step closer to where we need to be. But property investors will welcome this news with more than a little caution. While this decision may result in lower interest rates, it still doesn’t feel like we’re approaching the end of the UK’s economic uncertainty.”
Robert Sadler
Robert Sadler has over 20 years of experience in debt advisory, lending, and real estate equity investment. He spent 14 years as a lender for banks. At Excellion Capital, he specialises in refinancing and debt restructuring.
What’s the outlook for 2025?
While this cut offers some relief, mortgage rate rises over the past two years have left borrowing costs high.
Still, many experts believe rates could fall further if inflation continues to decline.
Neil Louth, CEO of Acorn Group, sees this as an important shift: “Today’s reduction in interest rates is good news for the property industry and the millions of people wishing to move, remortgage or get onto the housing ladder. An interest rate cut has rarely been so widely anticipated. For our customers, the good news is increased affordability for buyers and good refinancing prospects for homeowners and landlords.”
Neil Louth
Neil began his career with The Acorn Group in 1993 as a sales negotiator, specialising in residential sales for a decade. His progression saw him expand the business through new branches, divisions, and income streams.
Should you act now?
If you’re planning a self-build or renovation, now could be the time to explore mortgage options. While further cuts may come, waiting too long could mean missing out on better deals.
House prices still remain high but these are not predicted to fall for the rest of 2025 so acting now, experts predict, will not negatively affect you financially.
Plus buying a house now could prevent you from facing a rise in stamp duty that is coming on April 1st, which could save you thousands in addition tax.
The recent drop in the Bank of England base rate to 4.5% signals a shift in the mortgage landscape, potentially bringing some much-needed relief to borrowers.
As tracker mortgage rates and standard variable rates follow suit, homeowners and those looking to buy or remortgage could benefit from lower monthly payments.
If you're considering buying a house or refinancing, now might be a great time to lock in a more affordable rate before further changes take place.
News Editor Joseph has previously written for Today’s Media and Chambers & Partners, focusing on news for conveyancers and industry professionals. Joseph has just started his own self build project, building his own home on his family’s farm with planning permission for a timber frame, three-bedroom house in a one-acre field. The foundation work has already begun and he hopes to have the home built in the next year. Prior to this he renovated his family's home as well as doing several DIY projects, including installing a shower, building sheds, and livestock fences and shelters for the farm’s animals. Outside of homebuilding, Joseph loves rugby and has written for Rugby World, the world’s largest rugby magazine.
