This month’s latest base rate cut to 4% marked a full year since the Monetary Policy Committee first started easing rates after four years of base rate stagnation.
Shaving off another 0.25 percentage points, this latest cut marks the fifth in the past 12 months and the third in 2025 and is a 1.25 percentage points reduction on last year’s 5.25% rate. It was a tight decision, though, with a majority of 5-4 voting to reduce the base rate rather than maintain it at 4.25%. A second vote was also ordered after an initial stalemate in decision-making. The MPC has reiterated a preference for slow and steady cuts where possible.
Welcome news
Despite the caution, this latest cut is good news for the housing market, especially after a hoped-for cut at the last meeting failed to emerge. The first cut last August caused a huge boost to the sector as mortgage rates fell and buyers returned. The comparative boost for the same time this year is unlikely to be as strong, but the resilience of the sector remains, especially after changes to mortgage affordability rules earlier this year also eased the pressure on buyers.
There was a surge in demand before the stamp duty changes, announced in October 2024, came into effect in April. Many predicted interest would tail off after but both demand and supply have remained strong. The number of buyers contacting estate agents about homes for sale was up 6% on the same time last year, according to Rightmove’s July House Price Index. Deals are also progressing strongly, with the number of sales agreed 5% higher than this time last year.
Predicting future cuts
Longer term, however, uncertainty remains. This time last year, inflation was at the government’s 2% target in both May and June. Yet in 2025, inflation was 3.4% in May and rose unexpectedly to 3.6% in the 12 months to June. At its August meeting the MPC warned that inflation is likely to peak at 4% in September, although it says it should fall back towards the 2% target thereafter.
A cooling labour market could prompt more rate cuts but global instability – both in the Middle East and with President Trump’s tariffs taking effect – could mean that the path to further interest rate cuts may not be an easy one. Most analysts believe that one more cut, expected in November, is likely. This will again echo the rate-cutting pattern of last year.
Impact on mortgage rates
As interest rates have fallen, mortgage rates have followed a similar path, especially as lenders strive to attract buyers back to the market. Rightmove’s July mortgage tracker showed that the two-year fixed mortgage rate was 4.53%, compared with 5.34% at the same time last year – a saving of around £150 a month on a typical new mortgage.
The news of the latest interest rate cut should be encouraging for both buyers and sellers alike as the market warms up again, especially as September and the end of summer holidays looms and attention turns from summer breaks to househunting decisions.
For more information on how we can assist you on your sales journey, please contact one of our branches in Essex, London or Hertfordshire today. We also offer a free and instant online valuation to give you an idea of how much your home could be worth on the current market.
