The Bank of England’s latest decision to cut interest rates is expected to ease mortgage costs and support a more constructive start to the housing market in the early part of the new year. The base rate was reduced from 4 per cent to 3.75 per cent, marking the sixth cut since August 2024, a move that had largely been priced in as inflationary pressures continued to soften.
While most homeowners are on fixed-rate mortgages and will not see an immediate change, borrowers on tracker and variable products are likely to benefit quickly. Several lenders have already confirmed adjustments. Nationwide, for example, has said that customers on its standard variable rate will see a reduction of 0.25 percentage points from the beginning of January. These changes may appear modest, but they contribute to a broader improvement in affordability that has been gradually building over recent months.
For buyers planning to remortgage or enter the market in 2026, the rate cut reinforces the momentum already visible in fixed-rate pricing. Two- and five-year mortgage products have been edging lower as lenders compete for market share ahead of what many expect to be a busier year. According to market commentators, some short-term fixed rates are now available just above 3.5 per cent, with further reductions possible as the traditionally quieter end-of-year period passes.
There is also growing discussion around product choice. Expectations of further base rate cuts are encouraging a shift towards two-year fixes, as borrowers look to retain flexibility. Some homeowners who recently committed to longer-term deals may now be questioning those decisions, particularly as trackers and shorter fixes begin to look more attractive in a falling rate environment.
Market activity in recent months has been held back by wider uncertainty, including speculation around tax changes ahead of the Autumn Budget. This caution was especially evident at the top end of the market, where concerns about potential new levies weighed on decision-making. However, the latest rate cut is widely seen as a positive signal that could help restore confidence and bring hesitant buyers back into play.
From an agent perspective, sentiment is starting to turn. Lower borrowing costs, even incremental ones, have the potential to improve enquiry levels and encourage more discretionary movers. There is also an expectation that international buyers, many of whom are particularly sensitive to financing conditions and currency dynamics, may begin to re-engage as stability improves.
That said, optimism remains measured. Some analysts note that much of the benefit of the rate cut has already been reflected in fixed mortgage pricing. Economic growth remains subdued, and a softer labour market continues to act as a constraint on rapid price growth. Savills, for example, expects house prices to rise only modestly next year, with low single-digit growth likely even as affordability improves.
Particularly across cities such as Liverpool and the wider North West, the outlook points to steady rather than dramatic change. Lower rates help underpin demand, but long-term confidence will continue to depend on employment growth, infrastructure delivery, and policy clarity. In that context, the rate cut is best viewed not as a turning point, but as part of a gradual recalibration towards a more balanced and sustainable housing market.
