What today’s rate cut means for your mortgage, buying power, and investment strategy Today, 8 May 2025, the Bank of England (BoE) trimmed its base interest rate by 0.25 percentage points to 4.25%. In a split 5–4 vote, the Monetary Policy Committee (MPC) agreed the quarter-point cut in response to weakening growth and lower inflation pressures. Two members even favoured a larger half-point cut, while two dissented for “hold”. This is the BoE’s first rate reduction since late 2020, and it reflects fresh economic headwinds, notably Donald Trump’s recent trade tariffs, which have dampened global demand. The BoE’s statement emphasised that higher U.S. and foreign tariffs would “weigh somewhat” on UK growth and push down inflation, but it also stressed uncertainty. Governor Andrew Bailey noted how “unpredictable the global economy” has become, arguing for a “gradual and careful” approach to any further cuts. The decision was taken in the context of cooling inflation and sluggish UK growth. UK CPI inflation fell to 2.6% in March 2025 (down from 2.8% in February). Markets now expect BoE officials to be cautious: forecasts show inflation peaking near 3.5% this year (slightly below prior estimates) and returning to the 2% target by early 2027. Growth has been almost flat, UK GDP was roughly +0.1% in late 2024, as higher rates and cost pressures have constrained spending. In short, the MPC judged that inflation is on a downward path and a small cut will help “stimulate economic activity in the face of a global slowdown”. Financial markets have overwhelmingly priced in this move: by early May swap markets implied a 100% probability of a 4.25% base rate, and many economists now forecast further cuts to around 3.5–3.75% by late 2025. Impact on Mortgages: Fixed vs Variable Rates Variable-rate mortgages (including tracker loans and standard variable rates) will see an immediate cut in payments. As the base rate falls, lenders will typically reduce the rate on existing trackers and SVRs. Households on those products should get some relief in their monthly instalments in coming weeks. In contrast, fixed-rate borrowers are unaffected until their deal ends. Those locked into fixed terms must wait until expiry before switching, but new fixed deals are already cheaper. In fact, ahead of the announcement many lenders pre-emptively cut their fixed mortgage rates. We previously reported that “major lenders… trimmed their fixed mortgage pricing”, unleashing a mini price war: dozens of sub-4% fixed deals have appeared for well-qualified borrowers. This aligns with market data: average two- and five-year fixed rates fell in early May to around the 3.8–3.9% range, down from the low 4%’s a few months prior. Fixed-rate deals under 4% were almost unheard of just a quarter ago. However, these rock-bottom rates generally require larger deposits (often 35–40% LTV) or arrangement fees, so lenders reserve them for lower-risk borrowers. We previously pointed out that while wholesale funding costs have eased, “further substantial cuts to mortgage rates are not guaranteed” if competition wanes or if BoE action surprises. In any case, the era of relentless rate rises has likely peaked; banks are now “vying for business as borrowing costs drift lower”. In the medium term, mortgage rates should drift down further if the BoE cuts again. The official forecast is for a series of gradual cuts (perhaps to 3.5–3.75% by year-end). As expectations of easing solidify, important swap rates have already dropped. (Our previous analysis notes 5-year swap yields fell sharply on the tariff news, a sign fixed mortgage costs can fall too.) Many lenders are also relaxing affordability criteria to extend credit: the BoE and Treasury have signalled support for higher loan-to-income ratios. For example, specialist lenders like April Mortgages now offer up to 7× income to top earners. Trackers are even making a comeback, as lenders promote products linked directly to the base rate. Borrowers who are willing to take a bit of risk (expecting further cuts) may choose a tracker or a short-term fix to capture future falls, rather than locking into a long-term fix now. Conversely, some lenders are re-introducing very long fixes (10–15 years) for borrowers who prize security, though these come with the warning that one might “miss out on cheaper rates” if base rates fall as expected. Key takeaway: Variable-rate borrowers gain now, while fixed-rate borrowers hold their course for the moment. New mortgage applicants can already access historically low fixed deals, and further cuts may come. Its important to note that the prospect of cheaper mortgages is a clear silver lining, lenders have started passing on lower costs to customers. This is benefiting homebuyers and remortgagers immediately. As the Guardian reports, brokers say “homebuyers and those looking to remortgage are the beneficiaries of a mortgage price war, with lenders cutting the cost of their new fixed-rate deals”. Indeed, Nationwide has moved its first-time buyer fixes below 4% for the first time in many months. Guidance for Homebuyers and Homeowners Review your current mortgage. If you are coming off a fixed deal soon, get advice early. Lenders have reintroduced very competitive offers, so it may pay to lock in a new fixed rate now. Even a small fixed deal fee can be worthwhile, given the sharp rate drop. Willow Private Finance recommends homeowners prepare early: coordinating with a broker can secure an offer and even a rate lock (mortgage “hold”) before your current deal ends. This ensures you capture the lower rates. Conversely, if you currently have a tracker or SVR, expect your payments to fall with the new base rate. Decide whether you want to continue on variable terms (to benefit from potential further cuts) or switch to a fixed deal for certainty. Those who expect more cuts may opt for short-term fixes or trackers in 2025, whereas borrowers valuing certainty might lock into a 2–5 year fix now. Buyers: Act now to lock rates. If you’re planning to purchase a home, talk to a specialist broker like Willow as soon as possible. Mortgage deals have improved dramatically, even buyers with modest deposits can often get better terms than a few weeks ago. Brokers note that as banks compete, lenders are softening some lending rules (e.g. higher income multiples). First-time buyers should explore the new sub-4% fixes with cautionary terms. Many of these require a substantial deposit (20–25% at least) and some fees, but they offer enormous savings compared to last year’s rates. A whole-of-market broker can compare dozens of lenders quickly, helping you find a deal that matches your deposit and income. Also, consider the longer costs: if inflation and rates truly fall as projected, even a slightly higher fixed rate now might seem overpriced in hindsight, so weigh how long you plan to stay in the deal. Homeowners looking to remortgag e: Your situation is much like that of homebuyers. With rates tumbling, now is a good time to remortgage. Homeowners who locked into high fixed rates in recent years should check if they can break out of those deals (even paying the exit fee) to save money. Many who were on SVR (around 6–7% last year) have already seen cuts to 5–6% as base rates fell to 4.5%; a further cut to 4.25% will reduce those, so compare what lenders offer on remortgages. Even a swing of 0.5% on a £200,000 mortgage cuts annual interest by £1,000. Major lenders (HSBC, Nationwide, etc.) have announced more cuts this week. Work with a broker to find the best available deal. Protection and affordability. The changed rate outlook also affects protections: since mortgage payments will fall, lenders may re-open financing to some borrowers who previously failed affordability tests. If your circumstances changed recently, you may now qualify for a larger mortgage. On the other hand, don’t underestimate living costs. Inflation is expected to tick up later this year (e.g. April’s energy price cap rise). Make sure you budget prudently. We advise clients to keep adequate life/critical illness protection in place, especially if they have health issues that might complicate reapplication in future. Guidance for Property Investors Property investors and landlords should view this shift as an opportunity, but also stay cautious. Cheaper borrowing costs can boost investment returns. Those with buy-to-let (BTL) mortgages will see their tracker or SVR rates cut, while new BTL fixed deals are likewise dropping. Willow Private Finance’s specialist team have seen that even complex cases (like portfolios in corporate or trust structures) are finding attractive deals again. For example, one recent Willow refinancing case locked a £3.2 million multi-property portfolio into a 5-year fixed loan at 5.62%, a competitive rate for such a complex situation in 2025. Today, mainstream BTL fix rates have fallen to the low-4%’s or below, so landlords should re-evaluate all current loans. That said, investors should consider the broader picture. If property prices were dipping earlier this year, more affordable mortgages could help stabilise demand. But global uncertainties remain. Our outlook is one of “cautious optimism”: while “cheaper financing is a clear positive”, trade tensions and economic jitters might still make some buyers hesitant. If you’re refinancing or expanding your portfolio, you may now qualify for higher loan-to-value ratios or stretched incomes, but balance that against potential future rate moves. Keeping a mix of fixed and floating-rate finance could hedge risk. Also, ensure your rental yield and rental demand remain robust enough to cover loans in any scenario. Overall, property investors should use these lower rates to their advantage, whether that means refinancing to reduce costs, releasing equity for new purchases, or simply securing fixed deals to lock in affordability. But always maintain underwriting rigor: don’t just chase low rates, ensure your debt profile suits your cash flow and exit strategy. Insights from Willow Private Finance Willow Private Finance is a whole-of-market independent mortgage brokerage authorised by the FCA, with deep expertise in complex, high-net-worth and first-time-buyer cases. Our brokers have been tracking these shifts closely. As we note in recent analysis, the Bank’s cut and tariff news have triggered a notable fall in wholesale funding costs (“swap rates”), which quickly filtered through to consumers. Within days lenders cut new-loan rates across the board. Willow advisers report a “mini price war” on fixed rates, headline offers under 4% that were previously seen as unlikely. This has injected fresh demand: buyers who were waiting on the sidelines are now reactivating their mortgage searches. At the same time, lenders are loosening up. The FCA and Treasury have signalled banks can flex their affordability rules, and some niche lenders are already doing so for certain clients. We’re seeing trackers return to popularity for those comfortable with base-rate risk, and new long fixes (10+ years) for those wanting certainty. Our own casework highlights how a specialist broker can navigate these waters: for example, a trust-owned investor obtained a highly competitive 65% LTV refinance deal (5-year fixed at 5.62%) by tapping our network of lenders. Now that standard rates have fallen further, similar borrowers may even find cheaper solutions. From Willow’s perspective, the key is strategic planning. We advise clients to lock in good deals now but also stay flexible. For instance, while long fixes give stability, they might miss out if base rates fall further. Conversely, short fixes or trackers could save money in the coming year if cuts materialise, but they come with uncertainty. Our brokers tailor this advice: HNW investors might stretch for extra leverage knowing rates are low, whereas first-time buyers might prioritise security by fixing for a few years. In all cases, a “whole-of-market” view, comparing dozens of lenders and products, is crucial to find the optimal solution in this rapidly changing market. Practical Steps for Clients Now Review and Remortgage: If you have an existing mortgage (own-home or BTL), get quotes now. Even if you have a year or two left on your fix, it may pay to refinance early. Compare the savings on interest versus any exit fees. A broker can often hold a reduced rate for a few months, giving you flexibility to complete before your current deal ends. Lock in New Deals: If you’re buying soon, consider securing a mortgage offer and fixing the rate. Many lenders allow you to “reserve” a rate for 3–6 months while you exchange on a property. With deals at historic lows, the downside of locking in (versus trying for an even lower rate later) is smaller than before. Consider a Tracker or Short Fix: If you’re confident inflation will continue falling, a short-term fixed deal (1–2 years) or a tracker mortgage could yield savings. Our research suggests tracker products will benefit quickly from future BoE cuts. Ensure you have a clear exit plan, for example, one can re-mortgage again in 2026 if needed. Check Deposit and Equity: Lower rates improve borrowing power, so buyers may be able to stretch to a pricier home or invest more. Homeowners might unlock equity at better rates. But keep an appropriate deposit cushion to mitigate any property value dips. Protect Your Funding: Discuss with your broker whether a fixed-rate “rate hold” or mortgage indemnity product is right for you. This can lock your borrowing cost on an agreed rate even if closing takes time or if rates tick up again before your purchase completes. Consult an Expert: Now is not the time for guesswork. We recommend speaking to a broker experienced in your type of case, whether you are a first-time buyer, professional with irregular income, or a high-net-worth investor. Complex cases (trusts, overseas income, etc.) may unlock deals that standard bank branches can’t offer. A mortgage broker will also advise on timing: for example, if the BoE signals another cut in June, it might pay to wait a few weeks, or to act immediately on the May cut (depending on your situation). Keep an Eye on Inflation: Finally, watch the coming inflation data (April figures in mid-May, and the next energy bill cap in July). If inflation jumps unexpectedly, the BoE could pause its easing. So stay flexible, avoid locking yourself into multi-decade commitments if you’re not sure where rates will end up, and review your mortgage strategy at least annually. In summary, todays cut should reassure borrowers that the Bank of England is adapting to the new economic challenges. It eases pressure on households and businesses by lowering borrowing costs. The immediate reaction has been a welcome drop in mortgage rates for many. Looking ahead, Willow Private Finance expects further modest cuts through 2025, which should continue to ease borrowing. Clients should use this opportunity: refinancing or buying now can secure historically favourable terms. As one of our mortgage specialists advises, “we’re now in a buyer’s market in lending, if you have a solid profile, lenders are competing to offer you attractive deals.” Taking informed action today (through remortgaging, rate-locks or new borrowing) will position homebuyers, homeowners and investors to benefit fully from this shift. Sources: Bank of England MPC announcements and meeting minutes (March 2025); Reuters and Guardian coverage of the May 8 decision; UK inflation data; mortgage market reports (MoneySavingExpert, Moneyfacts, etc.); and insights from Willow Private Finance’s market analysis and case studies. Need Help With Property Finance? Complete Your Details Below And Our Team Will Get In Touch 

Bank of England Base Rate Outlook – May 2025 Update