The Bank of England’s Monetary Policy Committee (MPC) announced a 25 basis point cut to the Bank Rate, lowering it from 4% to 3.75%. This was the fourth rate cut of 2025 and the sixth since mid-2024.
Narrowly 5-4 in favor of the cut (four members preferred to hold at 4%). Governor Andrew Bailey — Switched to support the reduction after voting to hold in November.
A sharper-than-expected drop in UK inflation to 3.2% in November from 3.6% in October, stagnant economic growth forecast at 0% for Q4 2025, and a weakening labor market.
The BoE signaled a gradual path lower but cautioned that future decisions could be “closer calls,” with lingering concerns about services inflation and potential upside risks.
Register for Tekedia Mini-MBA edition 19 (Feb 9 – May 2, 2026): big discounts for early bird.
Tekedia AI in Business Masterclass opens registrations.
Join Tekedia Capital Syndicate and co-invest in great global startups.
Register for Tekedia AI Lab: From Technical Design to Deployment (next edition begins Jan 24 2026).
This provides a pre-Christmas boost for mortgage borrowers especially those on tracker rates and the broader economy, though savings rates may edge lower. Markets now price in limited further cuts in 2026, potentially to around 3-3.25%.
The December 18, 2025, rate cut provides relief for many borrowers, particularly those on variable-rate mortgages, while fixed-rate deals have already seen much of the benefit priced in due to market anticipation.
Mortgage rates are influenced by the base rate but more directly by SONIA swap rates which had driven cuts in fixed deals ahead of the announcement. Mortgages directly linked to the base rate.
Around 500,000 homeowners will see an automatic 0.25% reduction in their interest rate. This typically reduces monthly repayments by £15–£29 depending on loan size; e.g., ~£29 on an average tracker mortgage, or £15 per £100,000 borrowed.
Changes usually take effect within a month or so. Lenders aren’t obliged to pass on the full cut, but many do partially. Some have announced reductions, such as dropping their SVR equivalent from 6.74% to 6.49% effective January 2026.
Average SVR remains high at around 7.27%, so borrowers here could save modestly but should consider switching to a fixed or tracker deal. No immediate change—your rate is locked until the deal ends.However, new fixed-rate deals and remortgages benefit indirectly.
Lenders had already cut rates in anticipation, a “rate war” in recent weeks, with averages falling throughout December. Those remortgaging in 2026 e.g., coming off high-rate deals from 2024 could secure significantly lower rates, potentially saving £100+ per month for first-time buyers or typical borrowers.
Current average UK mortgage rates as of mid-December 2025 is ~4.89%. Two-year fixed: 4.82% some best buys as low as ~4.33–4.06% at lower LTV. Five-year fixed: 4.90% some best buys ~4.38% or lower.
These are down from recent months and reflect expectations of gradual further cuts. The cut was widely expected, so much of the positive impact on fixed rates is already reflected.
Markets now price in limited further cuts in 2026 possibly just one or to ~3–3.25%, due to cautious BoE guidance on persistent services inflation and economic risks. This could keep fixed-rate reductions gradual rather than sharp.
Overall, the current borrowing costs are easing, providing a boost for affordability, remortgagers, and the housing market heading into 2026. UK mortgages are also progressing to a massive growth tied to improved liquidity management.
If your mortgage deal is ending soon, shop around now—rates for new deals remain competitive, and locking in early can secure today’s lows. For personalized advice, consult a mortgage broker.