Bank of England reduce Base Rate to 3.75%

The Bank of England announced on Thursday 18th December, that it will reduce the Base Rate from 4% to 3.75%.

What does this mean for mortgage rates?

Any change to the Base Rate can impact the interest payable on loans, which includes mortgages.

• If you’re on a fixed-rate mortgage, your monthly payments won’t change until the end of your term.
• If you’re on a tracker mortgage or a variable rate mortgage, your monthly payments will drop in line with the change to the Base Rase.
   

Will the Base Rate be reduced further?

This Base Rate reduction brings the cost of borrowing down to its lowest level in nearly three years. 

While we have continued to see a downward curve this year, it is highly unlikely that Base Rates will drop back to the historic lows we saw back in 2021.

Are you thinking of waiting a little longer to see if they drop further? Torc24, our recommended mortgage advisor has said:

"We always advise our customers that we can lock in the best rate now, giving you peace of mind when you reserve your property. Think of this as a worst case scenario. Around a month prior to completion, we will re-assess the mortgage products available on the market and get you a better rate if possible ahead of completion."

What does the Base Rate reduction mean for affordability? 

Your affordability is determined by a ‘stress test’ - calculations made on whether or not you could afford a mortgage if your repayments were to jump considerably. This is linked to the Standard Variable Rate (Base Rate).

The ‘stressed rate’ is usually the lender’s SVR, with at least 1% added on top. So, if lenders reduce their SVR in line with the Base Rate cut, we may start to see improvements in affordability, because the stressed amount will now be lower than if the Base Rate wasn’t reduced.

When is the next Base Rate review?

The Base Rate is reviewed every 6 weeks by the Bank of England, deciding whether or not interest rates should increase, decrease or remain the same.

The next announcement will be on 5th February 2026.