What the BoE Base Rate cut to 3.75% means for your mortgage

After the lacklustre Autumn Budget, we were hoping for a little extra festive cheer to end 2025. And, from a mortgage perspective, the BoE might have just come up trumps.

The MPC announced, on December 18th, that it was slashing the Base Rate from 4.0% to 3.75%. The move caught some market watchers by surprise. But, for homebuyers looking for any kind of relief, this was a great way to kick off 2026.

3.75% is the lowest we’ve seen the base rate of borrowing in nearly three years. But beyond the headlines, what does this actually mean for your monthly outgoings heading into this year?

Here’s our take on why the MPC made this decision. And, more importantly, how lenders are reacting to it.

Why did the Bank of England cut rates now?

For months, the “will they, won’t they?” debate dominated financial pages. And, as recently as November, the decision to cut the Rate was a firm ‘No!’

The December sitting of the committee reversed the response, but the decision was on a knife-edge. The MPC voted by a tight 5–4 majority in favour of the cut this time around. That exemplifies how finely balanced those in power believe the UK economy is today.

So, what tipped the scales?

Inflation is behaving itself:

The CPI inflation rate fell sharply to 3.2% in November. This was way better than the Bank’s own forecasts. The “inflation tiger” is showing signs of taming compared to where we were in 2024.

The economy needs a nudge:

Recent data suggests the economy shrank slightly in October. In contrast, unemployment has ticked up. By lowering the cost of borrowing, the BoE is trying to encourage spending and investment. Together, these should keep the economy moving rather than stalling into a recession.

In short, the Bank feels confident enough that the worst of the inflation crisis is behind us. That perception has allowed it to start easing the pressure on households.

How have lenders reacted? (The good news!)

Here’s the part that matters most to your wallet.

Usually, when the Base Rate falls, it takes time for the effects to trickle down. However, this cut was anticipated by the wholesale money markets (as reflected in swap rates). On that basis, lenders had already sharpened their pencils before the announcement came.

Here’s what we’re seeing on the ground:

Tracker Mortgages:

If you’re on a tracker deal, the impact on your repayments will be immediate. You should see your interest rate drop by the full 0.25%. Depending on when in the month you make your repayments, this could be as soon as your next payment.

Fixed Rates:

The “Price War” is officially back on. Even before the 18th, lenders were cutting rates to compete for business in the New Year. We’re now seeing a flurry of sub-4% fixed-rate deals returning to the market for borrowers with good equity.

Standard Variable Rates (SVRs):

If you’re languishing on your lender’s SVR, you should see your rate reduced. That said, the impact won’t be as immediate as for those on tracker rates. The expectation is that most lenders will wait until February 1st, 2026 to pass this cut on.

(Top tip: If you are on an SVR, you’re almost certainly paying too much for your mortgage. Talk to us—for free, and with no obligation—to discuss your remortgage options!)

Your options, depending on where your mortgage is at

With the Base Rate at 3.75%, lenders are keen to lend. Early 2026 is shaping up to be a much brighter landscape for borrowers than 2025.

However, the market moves fast. Fixed rates now look attractive compared to where they were just six months ago. But waiting for the “perfect” bottom can be a risky game. Especially if:

• You’ve been paying through the nose on your lender’s SVR, or
• You’ve been remortgaging every year since the September 2022 debacle, or
• Your current deal is ending in the next 6 months.

Inflation is still nowhere near its 2% target, and has proved fickle over the last two governments. There’s no guarantee that it’s stabilised. That means there’s no guarantee the BoE won’t raise the Base Rate again if inflation ticks up in the new year.

These are some of the lowest interest rates we’ve seen in three years. Now is the time to act to rein in your 2026 budget.

How much could you save with the new rates?

The broking team at Mortgage Quest beats to the pulse of the market. We can lock in your next remortgage rate up to six months in advance with our Rate Monitoring Service. If rates go down, we move you to a lower deal. If they go up, no sweat. We’ve locked in your next deal. It can be that simple.

As an independent broker, we can scour the whole UK mortgage market. Our network and reach can identify lenders reacting most aggressively to the rate cut. Leverage our access to get the best new deal for your situation.

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Author: John Yerou

John Yerou is the owner and founder of the award-winning Mortgage Quest Ltd and its subsidiary brands.

In 2004, John began his career in financial services as an independent mortgage advisor and broker. He's since been instrumental in negotiating bespoke mortgage underwriting criteria for professional contractors with many high street lenders.

As such, John's one of the most respected and recognisable names in securing mortgages for the UK's flexible workforce, incorporating independent professionals and the self-employed.

His recognition as the go-to mortgage expert has grown exponentially, reflected in citations and his own publications in both national and contractor-oriented press.

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