Borrowers with variable rate mortgages are set to benefit from a reduction in their monthly payments after the Bank of England announced a cut in the base rate from 5 per cent to 4.75 per cent. This recent decision is expected to provide some much-needed relief to those who are on tracker mortgages or standard variable rates, as many lenders have indicated they will follow suit by lowering their rates.
In response to this development, some of the UK’s major lenders have already confirmed that customers with tracker mortgages or standard variable rates will see a reduction in their interest rates. For the majority of those on tracker mortgages, the impact will be felt almost immediately, as these mortgages are directly linked to the Bank of England’s base rate, with the interest rate adjusted according to the base rate plus a set percentage. This means that, as the base rate drops, borrowers will see their monthly mortgage payments fall in line with the new lower rate.
For example, a mortgage deal that is set at the base rate plus 0.75 per cent will experience a reduction from 5.75 per cent to 5.5 per cent due to the recent decision to lower the base rate to 4.75 per cent. This will provide immediate relief to borrowers on tracker mortgages, as these rates are directly tied to the Bank of England’s base rate plus a fixed percentage. With this reduction, borrowers can expect their monthly repayments to drop accordingly, which will likely offer some breathing room in an otherwise challenging financial environment.
Borrowers who are on their lender’s standard variable rate (SVR) may also see a reduction in their monthly mortgage payments. However, this change will be at the discretion of each individual lender, as SVRs are not automatically adjusted in line with base rate changes. These rates are often used as a default once the fixed-rate period on a mortgage ends, leaving borrowers who do not remortgage onto a new deal subject to the SVR. Unlike tracker mortgages, SVRs are more flexible and can fluctuate at the lender’s discretion, meaning the extent of any reduction in monthly payments will depend on the lender’s own policies and response to the Bank of England’s rate cut. While this may provide some relief, borrowers on SVRs should keep an eye on any future changes, as these rates may not always follow the same trends as base rates.
Which banks are cutting mortgage rates?
Nationwide has already confirmed reductions for customers on variable rates. From 1 December 2024, customers on its standard mortgage rate, which is another name for a standard variable rate, will see a reduction of 0.25 per cent, lowering it from 7.74 percent to 7.49 per cent. This change is part of Nationwide’s response to the recent base rate cut by the Bank of England.
For existing Nationwide customers on tracker mortgages, the rates will automatically decrease in line with the base rate cut. As such, these customers will see a decrease to reflect the Bank of England’s decision, which will come into effect from 1 December 2024. For new customers, Nationwide’s lowest tracker rate is now available at 4.94 per cent with a £999 fee (base rate plus 0.19 per cent). An attractive feature of this deal is that it comes without any early repayment charges, providing borrowers with the flexibility to exit the deal without incurring additional fees—a distinct advantage of tracker mortgages.
Santander has also announced changes in response to the base rate cut. From 3 December 2024, all existing Santander tracker mortgage products linked to the base rate will decrease by 0.25 per cent. In addition, the lender will reduce its standard variable rate (SVR) by 0.25 percentage points, lowering it from 7.25 per cent to 7 per cent.
Other major lenders have followed suit, with Lloyds and Halifax also reducing their SVRs. Halifax’s current SVR of 8.49 per cent will decrease by 25 basis points to 8.24 per cent. For new customers, Halifax is offering one of the best tracker deals on the market, with rates starting at 4.83 per cent (base rate plus 0.08 per cent) for buyers with at least a 40 per cent deposit.
Barclays will also be reducing its SVR from 8.49 per cent to 8.24 per cent. Furthermore, the current rate for its tracker mortgage, which stands at 6.99 per cent (base rate plus 1.99 per cent), will be slashed to 6.74 per cent.
TSB has also confirmed that it will align its SVR with the Bank of England base rate, with cuts set to take effect from 11 November. Smaller lender MPowered Mortgages has gone a step further, cutting its SVR by three times the Bank of England’s reduction. As a result, MPowered’s SVR will drop from 7.49 per cent to 6.74 per cent.
For borrowers whose mortgage lenders have yet to announce any changes, there is still time. David Hollingworth, associate director at broker L&C Mortgages, commented: “In terms of cuts following yesterday’s base rate decision, we’ve seen largely tracker rate movement along with a few SVRs. All trackers will move in line with the base rate cut, but lenders can take a bit of time to announce. We’re expecting to see more cuts on SVRs as well, though they tend to dribble through a little over the coming weeks and months.”
Will my tracker mortgage rate be cut?
Around 8 per cent of mortgaged households in the UK, which is approximately 700,000, are on tracker mortgages, according to UK Finance. These households have an average outstanding mortgage balance of £139,124. Before the recent base rate cut, the average rate on these tracker mortgages was 6.44 per cent, meaning that typical borrowers were paying around £1,032 each month.
Following the Bank of England’s recent 0.25 percentage point base rate reduction, the average rate for tracker mortgages is expected to fall to approximately 6.19 per cent. This reduction will lead to a £20 saving on monthly payments, bringing the typical repayment down to £1,012.
For borrowers on interest-only tracker mortgages, the impact will also be beneficial, with the average borrower seeing a saving of around £29 each month, as reported by UK Finance.
Chris Sykes, technical director at mortgage broker Private Finance, commented on the changes: “Following the base rate decision, we received various emails from lenders informing us they were reducing their tracker deals. If you are on a tracker deal, your rate should generally reduce either straight away or imminently.”
Will my standard variable rate be cut?
According to UK Finance, approximately 693,000 mortgaged households are currently on a standard variable rate (SVR). The average household on an SVR has an outstanding mortgage balance of £82,438, with the average rate set at 7.01 per cent. This means that the typical SVR household is paying around £701 a month.
SVRs are subject to change at any time, with lenders typically adjusting them in line with changes to the base rate. However, lenders have the discretion to increase or decrease their SVR by more or less than the Bank of England’s move.
If a lender decides to pass on the full 0.25 basis point cut to their customers, this would result in an average reduction of £17.17 in monthly payments, based on analysis from UK Finance.
Chris Sykes, technical director at Private Finance, explained: “With SVRs, they are not directly linked to the base rate; they are priced based on each bank’s internal metrics. When the base rate was rising, not all banks passed on those increases to borrowers. Similarly, as the base rate falls, they may not fully pass on all of the reduction either.”
Will fixed rate mortgages be cut?
According to UK Finance, approximately 82 per cent of mortgaged households are currently on fixed-rate deals, which equates to nearly 7 million homes across the UK. These homeowners will not be directly affected by the recent base rate cut, as their mortgage rates will remain unchanged until the end of their fixed term.
However, the movement in interest rates could impact them when they apply for their next mortgage. It’s important to note that changes in the base rate do not always immediately or directly translate into fixed mortgage pricing, meaning the full effect may not be felt right away.
In reality, mortgage rates are influenced by a range of factors, including future market expectations for interest rates, banks’ funding and lending targets, and their appetite for new business.
One key factor in this is swap rates, which reflect market expectations for interest rates over the long term. These rates are influenced by a number of elements, such as projections for the Bank of England base rate, the wider economy, internal bank targets, and competitor pricing. Swap rates provide a benchmark for where the market expects interest rates to move.
As of 6 November, two-year swap rates were at 4.25 per cent, while five-year swaps stood at 4.09 per cent. It’s important to note that it’s quite rare for the lowest fixed rate deals to fall below their equivalent swaps, which they currently are. This suggests that there could be rises in fixed rates in the near future.
At present, the lowest five-year and two-year fixed rates are both below 4 per cent, which has led brokers to warn that fixed rates are more likely to rise than fall in the short term. Chris Sykes, technical director at Private Finance, explained, “Fixed rates are not directly linked to the base rate. In fact, they are currently rising due to the increased cost of funding, which has become significantly higher in recent weeks, particularly following the Budget.”
He added that while some fixed rates set before the Budget are still available, we are likely to see these rates increase in the coming weeks.
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