Homeowners could save £275 a month as mortgage rates set to fall further

The Bank of England reduced its base rate to 3.75 per cent on December 18, marking the first time it has dipped below four per cent since February 2023.

Mortgage lenders began adjusting their pricing ahead of the announcement, with fixed-rate deals falling in the weeks beforehand as providers anticipated the cut and passed on savings to borrowers.

The potential monthly saving is based on a £275,000 property with a 75 per cent loan-to-value mortgage over 25 years.

Between November and December 2025, the average two-year fixed mortgage rate fell from 4.43 per cent to 4.24 per cent, a reduction of 0.19 percentage points, while five-year fixed deals eased from 4.49 per cent to 4.35 per cent.

Tracker mortgages saw the largest movement, with two-year tracker rates dropping by 0.25 percentage points from 5.25 per cent to 5.00 per cent.

Borrowers on tracker products, which are directly linked to the base rate, can expect almost immediate reductions in their monthly payments following the Bank of England’s decision.

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John Fraser-Tucker, Head of Mortgages at Mojo Mortgages, noted that while the 0.25 per cent reduction was widely expected, the more significant development has been lender behaviour in recent weeks.

“Lenders are essentially ‘pricing in’ this anticipated drop,” he explained. “For those looking at remortgaging in early 2026, the market is beginning to show more appetite, but it’s a delicate balance.”

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Mr Fraser-Tucker observed a transition from the cautious approach seen during late autumn towards a more competitive environment expected in spring.

He suggested that even a modest base rate reduction serves as an important trigger for improved affordability, potentially unlocking demand from buyers who had been waiting while rates remained at four per cent.

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First-time buyers are set to benefit from improved stress test affordability as a result of the rate reduction, potentially boosting their borrowing capacity. The outlook for 2026 appears more favourable for those seeking to get onto the property ladder.

Fixed-rate products have already reflected these changing conditions. The average two-year fixed rate has declined from 4.5 per cent to 4.3 per cent, while five-year fixed deals have dropped from 4.4 per cent to 4.2 per cent.

This pricing pattern indicates that borrowers preparing to purchase their first property or remortgage in the coming months are likely to secure better terms than were available earlier in 2025.

Borrowers with tracker mortgages will experience near-immediate relief in their monthly payments, given the direct link between these products and the base rate. The 0.25 percentage point cut translates directly into lower costs for this group.

Those approaching remortgage deadlines within the next six months can anticipate increasingly competitive fixed-rate offerings emerging during the first quarter of 2026. The market is expected to become more favourable as lenders compete for business.

Homeowners currently on standard variable rates face a different situation. Lenders are under no obligation to adjust SVRs in response to base rate movements, though some may opt to do so. The average SVR currently stands at 7.49 per cent.

Comparing monthly costs over the past two years illustrates the scale of improvement for borrowers. Based on a £206,250 mortgage, average two-year fixed rates of 6.85 per cent in 2023 would have resulted in payments of approximately £1,438 per month. Current average rates of 4.65 per cent bring that figure down to around £1,164.

Mr Fraser-Tucker offered a final assessment of market conditions: “The 0.19% drop in 2-year fixed rates suggests lenders have already adjusted for the expected base rate cut, meaning we may not see a massive secondary drop immediately after the announcement.”