Borrowing costs are expected to fall to their lowest level since early 2023, as the Bank of England prepares to cut interest rates.
The Bank is widely expected to reduce its benchmark interest rate by 25 basis points today, following signs of a weakening labour market and a larger-than-forecast fall in inflation. The developments have eased pressure on policymakers to maintain restrictive borrowing costs.
Market pricing suggests a 98% chance that the Monetary Policy Committee will lower the base rate from 4% to 3.75%, which would take borrowing costs to their lowest level since early 2023.
UK inflation fell more sharply than expected in November, easing to 3.2% from 3.6% in October and reinforcing expectations that the Bank of England will cut interest rates.
Nathan Emerson, CEO of Propertymark, commented: “With inflation continuing to ease, there is growing optimism that the Bank of England will have the confidence to cut the base rate. Any reduction would provide a welcome boost to housing market confidence, improving affordability for buyers and offering relief to those approaching the end of fixed-rate mortgage deals.
“Lower borrowing costs would help stimulate activity, encourage more first-time buyers to take their first step onto the property ladder, and give existing homeowners greater confidence to move.
“While caution remains important, a shift towards lower interest rates would send a positive signal for both the housing market and the wider economy as we head into 2026.”
Matt Harrison, customer success director at Finova Broker, commented: “Next year is set to be a big year for refinancing, with 1.8 million mortgages due to mature according to UK Finance. Many of these borrowers have been happily sat on a pandemic deal of less than 3% for the last five years but are now looking down the barrel of a significant increase in monthly repayments as rates stand.
“A cut to the base rate, followed by another in the new year, could make a big difference to available interest rates and ease affordability pressures for borrowers. With inflation falling, the Monetary Policy Committee have no reason not to give borrowers what they need.”