Interest Rate Cut: What It Means for Homeowners & Savers

The Bank of England has announced a cut to its base interest rate, bringing it down to 4% – the lowest level in two years. This marks the first time since March 2023 that rates have fallen to this point.

The decision follows the release of the Bank of England’s August 2025 Monetary Policy Report and was made by a narrow 5-4 vote in the Monetary Policy Committee. It is the fifth consecutive cut since August 2024, taken at one of the slowest easing paces in the Bank’s post-war history.

What It Means for Homeowners

Lower interest rates will provide some relief to borrowers with variable or tracker mortgages, as their monthly repayments should decrease.

However, the impact will be more complicated for those coming to the end of fixed-rate deals. Around 900,000 fixed-rate mortgages are due to expire in the second half of 2025. Many of these were agreed five years ago at historically low rates. Even with the base rate cut, replacement mortgage rates remain higher than those deals, meaning some borrowers could face a sharp rise in repayments when they re-mortgage.

Impact on Savers

While lower interest rates can ease borrowing costs, they also mean smaller returns for savers. Those relying on interest income may find that their savings accounts and fixed-term products offer less attractive rates, prompting some to seek alternative investment options.

How Are Rates Decided?

The MPC is made up of nine members from a range of professional backgrounds. They meet roughly every 6 weeks to review key economic indicators, including inflation, wage growth, and overall economic activity, before deciding whether to change the Bank Rate.

Why Has the Rate Been Cut Now?

While the Bank of England hasn’t released its full reasoning yet, rate cuts are typically aimed at supporting economic growth by making borrowing cheaper for businesses and households. However, the decision also must be balanced against inflation concerns – lowering rates too far could risk pushing prices higher again.

To Summarise

Homeowners – Around 900,000 fixed-rate mortgage deals will end in the second half of 2025. Many households could face higher repayments when moving to a new deal, despite the base rate cut.

Savers – Returns on savings accounts and fixed-term products are likely to fall as banks and building societies pass on the lower rate.

Businesses – Cheaper borrowing costs may provide an opportunity for investment or refinancing, though economic uncertainty remains.