‌Bank of England cuts base rate to 5% – what does it mean for your mortgage and savings?

It's the first base rate cut in over four years – the last time was in March 2020, when the rate fell to its all-time lowest level of 0.1%. The rate hit a 16-year high of 5.25% in August 2023 after 14 consecutive increases before being held at that level.

I have a mortgage – what does this mean for me?

Here are the key need-to-knows for mortgage borrowers:

• For those on a fixed mortgage deal there's no change for now – but make sure to check rates if your deal is ending soon. Regardless of what happens to the base rate, the amount you pay WON'T change during your fixed period.
  
  But if you're close to the end of a mortgage deal, you might want to look at new deals now – particularly if price certainty is important to you. You can usually lock in a new mortgage deal six months ahead of time. This will give you insurance against any rate rises, plus sometimes the flexibility to switch to a cheaper deal, for free, if one launches before your current rate finishes.
  
  In July, fixed-rate mortgage deals dropped below 4% for the first time since April – though only for those with at least a 40% deposit or equity in their home.
  
  If your deal is ending imminently but you don’t want to re-fix yet, you could consider a tracker that doesn't come with early repayment charges. That way, if rates continue to come down over the coming months, you could move onto a fixed deal, penalty-free, at a time of your choosing.
  
  But bear in mind that trackers are currently over one percentage point more expensive than the cheapest fixes – so you'd need rates on fixes to come down substantially to make it worth being on a more expensive tracker rate in the meantime.
  

• If you're on a tracker mortgage that 'tracks' the base rate, you'll see your rate come down. And a change to your monthly repayment within days or weeks, depending on when your next repayment is – see what your lender is doing.
  

• If you're on your lender’s standard variable rate (SVR), the rate you pay MIGHT also come down. You're usually moved onto your lender’s SVR after your fix or tracker deal ends. SVRs can be changed by lenders at a whim, though normally it coincides with changes to the base rate – we've a lender-by-lender round-up below.
  
  However, SVRs are typically far more costly than fixed and tracker deals – currently they tend to range between around 7.5% and 8.5%. So, you should check if you can save by switching now (which is likely). If you're waiting for fixed deals to come down, you may want to consider a tracker with no exit fees in the meantime.

For the pros and cons of remortgaging early or locking into a product transfer, see our Getting ready to remortgage guide.

If you're struggling with the cost of your mortgage, see our guide on What to do if you're struggling to pay. If you've already fallen behind on your repayments, see our Mortgage arrears guide.

Mortgage rate changes lender-by-lender

I'm a saver – what should I do?

Savings rates have been fairly stable so far this year. For example, the top easy-access accounts have hovered at around 5%, while the top one-year fixes have floated around 5.15% to 5.3%.

However, with the base rate being cut, it's likely savings rates will dip in the short-term. We'd expect to see the effect of this on easy-access accounts first, as they tend to respond more quickly to changes in the base rate.

We contacted all major providers to ask them what they're doing in response to the base rate cut. Here's what they said:

• Co-op Bank, NatWest, Principality Building Society, RBS, Santander, Skipton Building Society and Ulster Bank all confirmed rate cuts of up to 0.25 percentage points on their variable-rate savings accounts.

• Many others, including Barclays, HSBC, Lloyds, TSB and Virgin Money told us they'd be reviewing their rates – meaning they'll likely follow.

For more on this, see our weekly email published on 6 August 2024 where we warn savers to Check their rates now as millions can ditch and switch to earn more. If your rate is less than the top standard easy-access rate, which is currently 5.2%, you should consider switching. See our regularly-updated Top savings accounts guide for the latest deals.

Why the base rate was cut

The base rate is used by the Bank of England as a tool to control inflation (the rate at which prices rise). It has a target of 2% for the Consumer Prices Index (CPI) measure of inflation, which is set by the Government.

As inflation was above the target level for more than three years between May 2021 and May 2024, the Monetary Policy Committee (MPC), which sets the base rate, has kept the rate high to try to bring price rises under control.

But CPI inflation returned to the Bank's target of 2% in May and June 2024 (as announced in June and July 2024), so the MPC has now voted to bring the rate down.

The MPC voted by a majority of five to four to reduce the base rate by 0.25 percentage points, to 5%. Four members voted to maintain the rate at 5.25%. Explaining the reasons for its decision, the Bank said that the impact from past external shocks to the economy "has abated" and that there had been "some progress in moderating risks" of persistent inflation.