Base rate cut will see ‘mortgage competition set to heat up sharply in coming weeks’

Following a hold in December 2024, the Bank of England has today cut interest rates to 4.5%.

This comes as a result of inflation remaining relatively stable and decreasing to 2.5% (December 2024), despite being higher than the Bank of England target rate of 2.0%.

What matters here is not the decision, it’s the vehemence with which it was taken.

The markets had regarded a 0.25% rate cut as a nailed-on certainty. But what has raised some eyebrows is the strength of feeling among the Bank of England’s ratesetters.

The only two dissenting voices on the Bank’s nine-member committee wanted to cut more, not less, off the Base Rate.

All of which will lend credence to the idea that a flurry of further base rate cuts could be on its way. The swaps curve – which ultimately determines how lenders price their mortgages – is currently suggesting that we could see a further three base rate cuts by this time next year.

Swap rates can ebb and flow, but nevertheless the fact that the markets are now anticipating three more cuts should enable lenders to start trimming the rates they offer customers.

January is traditionally a time of intense rate-cutting as lenders slug it out for market share, but last month’s competition was relatively subdued. That could now change.

Demand from borrowers is strong, and separate data from the Bank of England showed the number of mortgage approvals jumped unexpectedly in December. Today’s decision may not open the floodgates immediately, but competition could heat up sharply in the coming weeks as lenders battle for borrowers’ business.