On 7th August, the Bank of England announced yet another interest rate cut, reducing the base rate from 4.25% to 4%. This marks the fifth reduction within a year and takes the base rate back to its March 2023 level. While the move is part of a broader effort to stimulate the economy, its impact will be felt differently by homeowners, savers, and new mortgage seekers.

The bottom line is: Will my mortgage get cheaper? The answer, however, is more nuanced.

Who Benefits from the Rate Cut?

The rate cut immediately benefits tracker mortgage customers – homeowners whose interest rates move in direct correlation with the Bank of England’s base rate. According to UK Finance, there are 590,000 tracker mortgage holders in the UK. For them, the new base rate means a direct and almost immediate reduction in monthly payments.

For example, a typical tracker mortgage holder with an outstanding balance of £140,000 will see their payments drop by around £28.97 per month. That’s roughly £347 saved annually without making any changes to the loan term or structure.

However, 85% of UK mortgage holders (over 7.1 million people) are on fixed-rate deals. For them, the rate cut doesn’t change monthly repayments until their fixed term ends.

Standard Variable Rate (SVR) Mortgage Holders: Waiting Game

Around 540,000 borrowers are on their lender’s standard variable rate (SVR). Unlike tracker mortgages, SVR rates are set by individual lenders, not directly linked to the base rate.

  1. Many lenders do reduce their SVRs after a base rate cut – but they are under no obligation to do so.
  2. If they follow the Bank’s cut in full, a typical SVR borrower could save around £13.87 per month.
  3. SVR balances tend to be smaller than tracker balances, which explains the lower average savings.

For SVR borrowers, the key action point is to shop around. Even a slight change in interest rate can make a significant difference over the course of a year, especially if your lender drags its feet in passing on the savings.

The Fixed-Rate Cliff: 900,000 Deals Ending Soon

The second half of 2025 will be pivotal for about 900,000 homeowners whose fixed-rate mortgage deals are expiring. Many of them are coming off historically low rates – some below 2% – and will face higher monthly payments even after recent cuts.

Five-year fixed deals ending now may see a jump to rates between 3.8% and 5% depending on the lender, deposit size, and applicant profile.

While this is significantly better than the 6%+ rates seen in 2023, it still represents a substantial payment increase for many households.

What About New Mortgage Deals?

Earlier this year, the UK saw a brief mortgage price war as lenders aggressively cut fixed rates to attract borrowers. While the frenzy has cooled, rates are still on a downward trend.

As of Thursday morning:

  1. Average five-year fixed rate: 5.01% (down from 5.09% in June)
  2. Average two-year fixed rate: 5.00% (down from 5.12% in June)

Interestingly, this is the first time since September 2022 that the average two-year rate has dipped below the average five-year rate – a return to traditional pricing patterns where longer fixes are slightly more expensive.

Some outstanding deals include:

  1. Santander two-year fix: 3.73% (for buyers with a large deposit)
  2. NatWest two-year fix: 3.77% (also for those with a significant deposit)

For borrowers coming off older ultra-low-rate deals, the gap between old and new rates is still uncomfortable, but it’s narrowing.

The Broader Economic Context

This interest rate cut isn’t just about mortgages – it’s part of the Bank of England’s strategy to keep the UK economy ticking amid sluggish growth and easing inflation. Lower base rates can stimulate borrowing and spending, support housing market activity and reduce costs for businesses.

But there’s a trade-off – savers earn less. For households relying on interest income from savings accounts, this latest cut means reduced returns.

Still, for the housing market, the rate cut is good news for affordability. Even if most fixed-rate borrowers don’t benefit immediately, the trend towards cheaper borrowing could make remortgaging less painful in the near future.