The First Base Rate Reduction in Over Four Years

The Bank of England has reduced the base rate from 5.25% to 5%. This rate, which the central bank charges to other banks and lenders for borrowing, will consequently affect mortgage and savings rates. Previously, the base rate had reached a 16-year high of 5.25% in August 2023 following 14 consecutive increases before stabilising at that level. 

The base rate is used by the Bank of England as a mechanism to control inflation, and the government sets an inflation target of 2% for the Consumer Prices Index (CPI). 

Between May 2021 and May 2024, inflation exceeded this target for more than three years. In response, the Monetary Policy Committee (MPC), responsible for setting the base rate, maintained a high rate to curb rising prices. 

However, CPI inflation returned to the Bank's target of 2% in May and June 2024, as announced in June and July 2024, and consequently, the MPC has decided to lower the base rate. 

The good news is that if you're on a tracker mortgage, your monthly repayments will be reduced. For individuals with a fixed mortgage, there will be no immediate impact; your payment amounts will remain unchanged during the fixed period. Nevertheless, if your fixed mortgage term is nearing its end, it is advisable to explore new deals, especially if price stability is a priority. Typically, you can secure a new mortgage deal up to six months in advance, providing protection against potential rate increases and sometimes allowing a free switch to a better deal if one becomes available before your current rate expires. 

Ultimately this reduction is a sign that mortgage rates are also on the downward trend, meaning you might be able to borrow more. This gives you access to a wider range of property options and makes expanding your portfolio more attractive.  
 
Now is the perfect time to review your mortgage options. Speak to one of our expert mortgage advisers at The Buy-to-Let Broker today for personalised advice.