Providing expert mortgage advice for over 28 years.
Providing expert mortgage advice for over 28 years.
The Bank of England’s base rate is the key interest rate. It affects mortgage rates, savings accounts, and types of credit in the UK economy.
The current Bank of England base rate is 4.25% as of 8 May 2025.
The inflation rate is currently 2.6%, which is slightly higher than the Bank of England’s goal of 2%.
When the base rate changes, it directly affects variable and tracker mortgage products.
The Monetary Policy Committee (MPC) meets eight times a year to review the current base rate.
In today’s market, it is essential to choose the right mortgage deal, check your mortgage balance, and be aware of any early repayment charges.
The base rate, also known as the Bank of England base rate, is the interest rate that the central bank sets for commercial banks to borrow money. This rate affects what interest rates banks give to customers for mortgages, loans, and savings.
A change in the base rate affects:
How much you pay in monthly payments for your variable or tracker mortgage.
How much interest you earn on savings accounts.
The interest amount charged on loans and credit cards.
The Bank of England website gives a detailed explanation about why interest rate changes happen.
Looking at recent trends helps us see how the base rate in the UK reacts to the economy.
2009: Decreased to 0.5% during the global financial crisis.
2020: Dropped to 0.1% because of COVID-19.
2021-2024: Increased quickly to combat inflation, reaching 5.25%.
May 2025: Currently at 4.25%, reflecting more stability.
It’s important to monitor changes if you want to take out a new mortgage or remortgage an existing product.
A fixed mortgage rate means your monthly repayments will not change for a specific period, like 2, 5, or 10 years. This is an excellent option if you want to keep your costs steady and protect yourself from increasing rates.
When your deal ends, your lender will switch you to a standard variable rate (SVR). This rate can go up or down depending on the base rate, but it is usually considerably higher than the initial rate.
What to do:
Check your mortgage balance.
Try an interest rate change calculator to check future payments.
Contact us to find a new mortgage deal to steer clear of high SVR rates.
Tracker mortgages are linked to the Bank of England’s base rate, which is usually + 1%.
Variable-rate mortgages are decided by the lender. They usually change when the base rate changes.
These loans can cost less when the base rate goes down. However, they can be riskier if the base rate increases. Picking the correct type of mortgage relies on how long you want to stay and how easily you can handle changes in your monthly payments.
Banks and building societies use the base rate to determine how much they will pay to borrow money. If their costs increase, they share that cost with the borrowers.
A higher base rate leads to higher mortgage and loan rates.
A lower base rate may result in lower rates for new mortgage customers, but it can also mean lower returns for people who save money.
This has a big impact on the affordability of loans and the total cost of borrowing in the UK economy.
Here’s a comparison showing how a base rate increase might affect three types of mortgages, all based on a £200,000 loan:
| Mortgage Type | Current Rate | Monthly Payment Change |
|---|---|---|
| Fixed (5 years) | 3.78% | £0 (until deal ends) |
| Tracker | 4.25% (Base rate linked) | −£29 |
| Variable (SVR) | ~6.99% (was ~7.24% before rate cut) |
−£32 |
Figures are based on a £200,000 repayment mortgage over 25 years. Fixed and tracker figures are based on current typical rates and verified calculations. For SVR, the monthly change is based on a reduction from ~7.24% to ~6.99% following a 0.25% Bank of England base rate cut in May 2025. As SVR changes are at the lender’s discretion, actual adjustments may differ. The initial rate used for SVR is stated to allow independent verification.
Use a mortgage calculator to check how changes in the base rate can impact your mortgage payments.
You can change to a new deal with your current lender. This process is usually fast and may not need legal checks.
Moving your mortgage to another lender can provide better opportunities.
Think about:
Check your current mortgage deal and see if it will expire soon.
Look at your mortgage balance and find out how many years are left on your term.
Be aware of any early repayment charge that applies if you leave your current deal.
You can talk to one of our expert mortgage advisers.
Some predict that rates will drop to 3.25% by the end of 2025, with gradual cuts expected to begin in the coming months.
This is important for mortgage customers who want to fix their rate now instead of waiting for lower rates.
The Bank of England’s MPC has suggested that it might lower interest rates soon. This will depend on the future data about inflation and economic growth.
Beyond mortgage rates, the base rate influences:
Savings accounts: When base rates are higher, you usually get better returns.
Types of credit: Credit cards and personal loans may become pricier.
First-time buyers: Higher rates might lower how much you can borrow and your ability to afford things.
Cost of living: Things like rent, food, and energy costs can be influenced.
If you’re struggling with your monthly repayments:
Reach out to your lender soon, and they might provide a short-term payment plan.
Talk to our mortgage advisors for fee-free mortgage advice.
Try not to miss payments, as this could damage your credit score.
The earlier you act, the more options you’ll have.
Our mortgage advice is free for you; lenders pay us a commission. Just keep in mind, other costs like solicitor fees may apply, and we’ll guide you through these too.
Understanding how the base rate affects mortgage rates can help you make smart choices. Whether you are getting a mortgage for the first time or looking at your current deal, it’s essential to:
Check your mortgage balance and your monthly payment plan.
Use a calculator to look at different options.
Keep an eye on news about the Bank of England base rate.
With possible lower rates coming soon, taking action early might lead to significant savings. This is important if your current mortgage deal is about to end.
Lenders usually change tracker and variable rates a few days after a base rate change. Fixed-rate deals might show expected changes before they happen.
Think about changing to a fixed interest rate mortgage
Pay off costly debt
Increase your savings to help cover higher monthly payments
If you can handle changing rates, a tracker mortgage can give you lower starting costs. However, if you prefer steady monthly payments, a fixed mortgage rate could be a safer choice.
The base rate, set by central banks, directly affects the cost of getting a mortgage. When the base rate is low, mortgage rates are lower, making it cheaper for first-time buyers to borrow money and buy a home.
If the base rate goes up, mortgages become more expensive, so monthly payments are higher, and buying a home gets harder.
Changes in the base rate also influence the whole housing market- lower rates can boost demand, while higher rates can slow things down.
That’s why first-time buyers need to keep an eye on the base rate when planning to buy a home.
At New Homes Mortgage Services LLP, we strive to provide accurate and up-to-date information at the time of publication. However, due to the dynamic nature of the property market, details may change and this content is intended for general informational purposes only. It does not constitute financial or professional advice and should not be relied upon as such.
We cannot accept responsibility for any decisions made based on this information. For advice tailored to your individual circumstances, please consult our qualified mortgage advisors. We recommend that you independently verify any important details before making financial commitments.
