Bank of England cuts interest rates to 3.75%: What it means for your mortgage and savings
The Bank of England cut interest rates today from 4 per cent to 3.75 per cent, in good news for homeowners with a mortgage.
The 0.25 percentage point cut was widely predicted as the Bank looks to take action against sluggish growth and rising unemployment.
Yesterday, the central bank received a further green light to cut rates as inflation fell to 3.2 per cent in the 12 months to November, below what markets had forecast.
However, it was a tightly contested Monetary Policy Committee vote that ended 5-4, with four members voting to stick at four per cent.
While the cut might spell good news for mortgage borrowers, it won't be received well by savers, as it might bring bank and building society savings rates down.
Today's cut is the sixth since August 2024, with interest rates having fallen 1.5 percentage points from their 5.25 per cent peak.
The last decision, on 6 November, was a hold as was the decision on 18 September, with the last cut coming in August.
We explain what the Bank of England's decision to cut rates to 3.75 per cent means for your mortgage and savings - and whether rates will be cut again soon.
Moving downwards: The Bank of England decided to cut interest rates to 3.75% today
What does this mean for mortgage borrowers?
Today's decision to cut the base rate to 3.75 per cent will be music to mortgage borrowers' ears, as a trend of falling interest rates tends to bring down mortgage rates over time.
Those on tracker mortgages, which move with the base rate, will see an immediate cut in line with the 0.25 per cent reduction.
The lowest tracker is currently offered by Halifax charging 4.11 per cent, with a £1,499 fee. This will now fall to 3.86 per cent.
While we are likely to see some small fixed rate reductions in the coming days, the decision won't lead to big mortgage rate falls straight away for borrowers looking for new fixed rates.
This is because lenders usually base their mortgage pricing on the longer-term trajectory of interest rates, rather than reacting to individual base rate decisions.
Rachel Geddes, strategic lender relationship director at broker Mortgage Advice Bureau said: 'While this latest cut provides much-needed confidence, borrowers should be mindful that many lenders have already priced this change into their current products.
'For those looking to remortgage, don't hold fire in hopes of further reductions: now is the time to secure your new deal.'
Those already on a fixed-rate mortgage are locked in to their rate for two, three or five years, during which time their payments will not change.
But there is a cohort of 1.8million for whom rate cuts are very welcome, as they must renew their mortgage deals next year.
Those coming off two-year fixes are likely to save money, given the best rates were around 4.75 per cent two years ago when they last fixed.
David Hollingworth, associate director at L&C Mortgages says people should lock in a deal ahead of their fixed rate ending
However, those coming to the end of five-year fixes will be coming off mortgage rates between 1 and 2 per cent, taken at a time when interest rates were at rock bottom.
Now, they face the prospect of remortgaging to a rate of around 3.5 per cent or more, or reverting to standard variable rates that can be higher than 7 per cent.
David Hollingworth, associate director at L&C Mortgages said: 'Homeowners will find themselves in a variety of different positions, with some eyeing the end of an ultra-low five-year fixed rate but others coming off shorter term rates taken when interest rates had spiked upwards.
'In either case the advice is much the same. Start to shop around three to four months before the current deal ends.
He says holding off in the hope rates fall further is risky, as forecasts have shifted regularly throughout the year. He suggests locking in a deal early, then switching it before it begins, which is often possible.
'You can always jump onto lower rates before you deal ends even if you have already locked down a rate in advance,' Hollingworth adds.
> Interest rate cut calculator: Check what it would mean for your mortgage
What next for mortgage rates?
Banks have been locked in a fierce mortgage price war in recent weeks, with the lowest rates on the brink of falling below 3.5 per cent for the first time in three years.
Halifax, the nation's largest lender, has cut fixed-rate mortgages by up to 0.17 percentage points. It now offers rates as low as 3.57 per cent.
NatWest, Barclays and Nationwide have also made reductions.
The interest rate cut will bolster hopes that mortgage costs will continue to fall in early 2026.
'We should see the new year start with more rounds of lender repricing,' says Hollingworth.
What happens after that depends on the future direction of the base rate. At present markets only expect one further quarter point rate cut in the first half of next year.
'Base rate should have scope to fall further next year but the pace may still be steady unless we see further easing in inflation,' Hollingworth adds.
'That could make room for more cuts but current expectation will be for base rate to see another one or two reductions next year.'
This could mean that interest rates are at 3.5 per cent within the next six months.
After that, it's possible that there could be one more quarter point cut to 3.25 per cent by the end of 2026, but the general consensus is that interest rates are unlikely to go lower than that.
However, there are some forecasts that suggest interest rates will fall further. HSBC and UBS have forecast that interest rates will fall to 3 per cent by the end of 2026.
If interest rates are cut by more than the markets are expecting, this could feed through into lower mortgage rates.
Cut rates: Halifax, the nation’s largest lender, is the latest to slash a range of its fixed-rate mortgage deals by up to 0.17 percentage points
What does this mean for your savings?
The base rate affects how much interest savers can earn on their money. In general, savings rates rise when the base rate is rising, and fall when it is falling.
Now that the base rate has been cut to 3.75 per cent, saves can expect to see savings rates fall over the next year.
James Blower, founder of website the Savings Guru says: 'None of this is good news for savers who can expect to see their rates cut. Worse, current rates are already priced above where I'd expect them to be for both the current Base Rate and the outlook going forward. Given this, I expect 2026 to deliver deeper cuts than just the drop in Base itself.
Since the start of August, just before the base rate was cut to 4 per cent, the average easy access savings rate has fallen from 2.68 per cent to 2.54 per cent and the average easy access Isa rate has fallen from 2.9 per cent to 2.71 per cent.
The best savings rates will likely continue to fall in the coming months.
Those who keep their cash in easy-access accounts are most at risk of rate cuts. Andrew Hagger, founder of independent information website MoneyComms says: 'Easy-access rates will take a hit when base rate moves tomorrow.
The average easy access rate has fallen below 3 per cent, well below the CPI rate of 3.8 per cent.
The best easy-access savings accounts currently pay around 4.35 per cent, while some accounts with restrictions pay up to 5 per cent.
What next for savings rates?
Savings rates are on a downward trend as the base rate comes down. Interest rate cuts reduce the amount banks earn on their own cash reserves, and this is passed on to customers.
Since the base rate was cut in August 2025, more than 90 per cent of savings providers have cut rates according to rate scrutineers Moneyfacts Compare.
The average savings rate now stands at 3.5 per cent, down 0.29 year on year. It was last above 4 per cent in January 2024 when it stood at 4.04 per cent.
However, there are much better deals available - we explain how to get them below.
Andrew Hagger of savings website MoneyComms says: 'I think we'll see a further two rate cuts during 2026, so by this time next year the rates on easy access savings accounts and cash Isas will be around 3.5 per cent for the best buy deals and 3 per cent as the norm.
'I would anticipate a best buy one-year fixed rate bond will be around 3.7 to 3.8 per cent this time next year.'
The best one-year fixed-rate bond currently pays 4.52 per cent. This is down from a high of 6.2 per cent in October 2023.
The best easy-access account pays 4.35 per cent which is down from a peak of 5.2 per cent in October 2023.
What should savers do now?
Savers should keep a close eye on their savings, whether they are stashed in an easy-access account, fixed-rate account or an Isa as rates are expected to fall across the board.
If your money is earning interest at a rate of less than the rate of consumer price inflation, 3.2 per cent, you should consider moving it to an account paying a better rate.
James Blower of website Savings Guru says: 'There's still time to secure some of the best fixed rates on offer and I'd urge savers to move quickly on that front, as I expect rates to be cut as soon as tomorrow afternoon.
Andrew Hagger adds: 'It's still worth moving if you're currently on a poor easy-access rate, say 3 per cent or less.
'Take a look at a straightforward, no-strings best buy deal such as Snoop at 4.25 per cent, Charter Savings Bank 4.18 per cent or Spring Easy Saver at 4.11 per cent.'
Savers are also advised to use cash Isas to protect as much of their cash as possible from the taxman.
Rachel Springall of Moneyfacts Compare added: There is still plenty of time to take advantage of an Isa before the cash Isa allowance is cut down in April 2027.'
Best savings rates and how to find them
The best easy-access savings accounts with no restrictions pay 4.35 per cent.
Chip has an easy-access deal paying 4.35 per cent. Someone putting £10,000 in this account could expect to earn £435 in interest after a year, if the rate remained the same.
Those with cash they won't immediately need over the next year or two should consider fixed-rate savings.
The best one-year deal is offered by Kent Reliance and pays 4.51 per cent. A saver putting £10,000 in this account will earn a guaranteed £451 interest over one year. It comes with full protection under the Financial Services Compensation Scheme up to £85,000 per person.
Union Bank of India is offering 4.45 per cent, while Chetwood Bank is paying 4.4 per cent. All offer FSCS protection.
The best two-year bond pays 4.42 per cent and comes from Kent Reliance.
For those who wish to lock their savings away for longer, Kent Reliance also offers the best three-year bond which pays 4.26 per cent and Hampshire Trust Bank has the best five-year deal paying 4.31 per cent.
Savers should strongly consider using a cash Isa to protect the interest they earn from being taxed. Our pick of the best cash Isas are featured below and you can check our cash Isa savings tables for all the top deals.
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