The Bank of England’s decision to cut interest rates to 4.75% from 5% marks its second rate reduction in 2023. This move follows a prior cut of 0.25 percentage points in August, the first since 2020, after which rates remained steady in September. The latest cut is seen as a bid to support borrowers, including mortgage holders, who stand to benefit from reduced borrowing costs.

This decision aligns with the Bank’s attempts to manage the economic pressures that have intensified in recent months. Lower interest rates typically ease debt repayments, providing relief to households and businesses facing high costs. At the same time, the rate cuts are likely aimed at encouraging spending and investment to counter slowing economic growth.

The Bank of England’s recent actions may also reflect a changing stance on inflation, suggesting it perceives inflationary pressures as having moderated enough to permit rate cuts without destabilising price stability. However, the Bank will continue to balance the potential stimulus from lower rates with its long-term commitment to keeping inflation close to its target.

A drop in interest rates a central bank, like the Bank of England, often leads to lower mortgage rates, providing relief for mortgage holders and potential buyers. Mortgage rates are influenced by the central bank’s base interest rate because it affects the cost at which banks and financial institutions can borrow money. When the central bank cuts rates, borrowing becomes cheaper for these institutions, and they typically pass on some of these savings to customers through lower interest rates on loans, including mortgages.

For homeowners with variable or tracker mortgages, which adjust based on the base rate, a rate cut usually translates to immediate reductions in monthly payments, easing financial pressure. Fixed-rate mortgage holders won’t see immediate changes, but new fixed-rate mortgage offers might come with more attractive rates, benefiting future buyers or those looking to remortgage.

Additionally, lower interest rates encourage more people to buy homes or refinance, potentially boosting demand in the housing market. For homeowners and potential buyers, reduced rates mean lower monthly payments and overall interest costs, making homeownership more accessible and affordable in a high-cost environment.

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Your home may be repossessed if you do not keep up with your repayments.