The Bank of England has delivered a significant boost to the UK mortgage market, cutting interest rates for the fourth time this year. In a move welcomed by prospective homeowners, the Monetary Policy Committee voted to reduce the base rate from 4% to 3.75%.
What the Rate Cut Means for Borrowers
This latest reduction, announced on Thursday 18 December 2025, brings the official cost of borrowing to its lowest level in nearly three years. The decision was driven by continued easing in inflation. Chancellor Rachel Reeves was quick to highlight the tangible benefit for those stepping onto the property ladder, stating that first-time buyers with an average-sized mortgage could see their monthly payments fall by around £100.
While the cut is a blow to savers seeking strong returns on their deposits, it is expected to provide a substantial stimulus to the wider housing market. Lenders are already adjusting their new product rates in response, making mortgages more affordable for new customers.
Looking Ahead to 2026
The timing of this monetary policy shift is particularly crucial for a large cohort of existing homeowners. Industry analysis suggests that approximately 1.9 million people are due to see their current fixed-rate mortgage deals expire during 2026. These borrowers may now find themselves refinancing onto significantly lower rates than previously anticipated, offering them considerable financial relief.
This series of rate cuts throughout the year marks a decisive shift from the high-inflation, high-rate environment that has dominated the UK economy. The government will be hoping that putting more money back into the pockets of mortgage holders will provide a sustained boost to consumer confidence and spending.
