Mortgage Advice Update: What the Base Rate Cut Means for You

Mortgage Advice Update: What the Base Rate Cut Means for You

Following the Bank of England’s recent decision to cut the Base Rate to 4.25% on 8 May 2025, there’s fresh optimism for homebuyers and those considering remortgaging. This is the second rate cut of the year, and while modest, it’s a positive step for those navigating the mortgage market.

At McDonald Estate Agents, we understand that interest rate changes can raise questions. That’s why we’re here to break down what this means for you—and how it could affect your plans to buy, move, or refinance.

Why Was the Base Rate Cut?

The Bank of England adjusts the Base Rate roughly every six weeks, aiming to keep inflation around 2% and ensure economic stability. With inflation falling to 2.6% in March, the Bank made the decision to lower the rate to stimulate growth and ease borrowing costs for businesses and households.

Markets had widely anticipated the move—and some experts believe we may see two or three more cuts before the end of 2025, potentially bringing the Base Rate down to 3.75%.

What Does This Mean for Mortgage Rates?

Mortgage rates have been gradually falling in recent weeks, and this trend may continue. Lenders often adjust their rates based on Base Rate movements, and while they don’t always pass on reductions immediately, we’re already seeing signs of change.

Here are the latest average mortgage rates (as of 10 May 2025):

The lowest available rates in the market are even more competitive:

• 2-year fixed: 3.72%
• 5-year fixed: 3.78%

With many lenders now reconsidering their pricing strategies, further reductions are expected in the coming weeks.

Rates by Deposit Size (Loan-to-Value)

The size of your deposit significantly affects your mortgage rate. Here’s a snapshot of average rates based on your Loan-to-Value (LTV) ratio:

For 5-10% Deposits (High LTV)

• 95% LTV, 2-year: 5.39%
• 90% LTV, 5-year: 4.79%

For 15-25% Deposits (Medium LTV)

• 85% LTV, 2-year: 4.58%
• 75% LTV, 5-year: 4.41%

For 40% Deposits (Low LTV)

• 60% LTV, 2-year: 4.01%
• 60% LTV, 5-year: 4.06%

These averages are based on mortgages with a fee of around £999.

What This Means If You're...

…On a Fixed-Rate Mortgage

Your current payments won’t change until your fixed term ends. However, if that time is approaching, now is a great time to shop around and lock in a new deal—ideally several months before your current one expires. Lenders often allow you to secure a new rate up to six months in advance, which can protect you from potential increases.

…On a Tracker or Variable Rate

Good news—your monthly payments are likely to go down in line with the recent Base Rate cut. How much will depend on the terms of your specific mortgage.

…Looking to Buy or Remortgage

With average rates dropping and more cuts potentially on the horizon, now could be a smart time to review your borrowing options. Even small reductions in mortgage rates can have a significant impact on monthly repayments and long-term costs.

For example, the average monthly repayment on a first-time buyer home priced at £228,551, with an 85% LTV 5-year fixed mortgage, now stands at £1,085 per month.

Could This Help with Affordability?

Possibly. Lenders assess affordability using "stress tests" based on their standard variable rates (SVRs), often with a margin added on top. As the Base Rate comes down, SVRs may follow—making mortgages more affordable for some buyers by easing these stress test thresholds.

However, it’s worth noting that SVRs remain high, averaging around 7.5%, so failing to remortgage in time can still result in higher monthly payments.

What’s Next?

The Bank of England’s next interest rate decision is due on 19 June 2025. While rates are unlikely to return to the historic lows of 2021, signs point toward a gradual downward trend, especially if inflation continues to ease.

Get in touch with McDonald Estate Agents today we can put you in touch with financial advisors and help you take advantage of the current market trends.

Adapted from Rightmove.