The mortgage market has welcomed the “festive cheers” of the Bank of England’s widely expected decision to cut bank rates today.
The Bank of England’s Monetary Policy Committee (MPC) voted in favor lower bank interest rate by 25 basis points to 3.75%.
The bank interest rate was maintained at 4% in September and November after being reduced from 4.25% to 4% at the August MPC meeting.
The reduction is the fourth this year, with the MPC implementing reductions in February, May and August.
Bank of England Governor Andrew Bailey said the MPC voted 5-4 in favor of the cut. The decision to cut bank rates was ultimately influenced by falling inflation.
Bailey said bank rates were likely to fall “gradually” depending on factors such as wage growth and inflation in the services sector.
Mark Harris, CEO of SPF Private Clients, said: “A cut in the base rate was a certainty after recent inflation figures, while still above the Bank’s 2% target, are moving in the right direction.
“This news will add to the festive cheer that borrowers are already experiencing with lenders cutting mortgage rates, eager to attract business and get 2026 off to a strong start.
“With some lenders reviewing prices on a weekly basis, it is now possible to access a short-term fix of just over 3.5%. Given the relatively quiet activity during the usual pre-Christmas lull, we would expect rates to fall below that level in late December or early January. It may take a little longer for five-year fixes to break the 3.5% barrier, but it could happen in the new year, with rates currently at just over 3.7%.”
The bank rate cut gives confidence to the mortgage market towards 2026, according to deputy director Ben Thompson of the Mortgage Advice Bureau.
Thompson said: “Whether you’ve been eyeing your first home or are desperate to move up the ladder, chances are you’ve been sitting on the sidelines waiting for interest rates to fall. However, the market has already priced in this stability and mortgage rates have already shown a gradual downward trend in recent months.”
MT Finance director of mortgages Marylen Edwards said: “Today’s decision by the MPC to cut rates will be welcomed by borrowers. After interest rates were cut by the US Federal Reserve last week, it seemed inevitable that the Bank of England would follow suit, especially after inflation fell in November.
“We are hopeful that this move will instill some confidence in the market, and we will see more landlords, as well as owner-occupiers, transacting in the new year.”
The bank rate cut will also be welcomed by landlords, although it comes as no surprise, said Steve Cox, Chief Commercial Officer of Fleet Mortgages.
Cox said: “In many ways a number of lenders have been ahead of this particular curve as they have actively priced it into products. We have seen a wave of mortgage rate cuts across the residential and buy-to-let sectors over the past week, perhaps in anticipation of this decision and in an effort to grow volume and pipeline as we move into 2026.
“On the buy-to-let front, product prices continue to improve, supported not only by this change in interest rates, but also by swaps that are increasingly in line with the view that further reductions could follow in 2026.
“For landlords, this is a positive way to end the year, and a promising start to 2026.”