Homeowners receive relief as UK lenders reduce mortgages following Bank of England rate cut.

• The major high street lenders in Britain have started reducing their mortgage rates, indicating that the financial strain on households may be decreasing following the Bank of England's decision to lower interest rates.
• The Bank of England's decision to lower its Bank Rate to 5% from 5.25% has led HSBC, Santander, and Nationwide to reduce borrowing costs.
• Tracker mortgage homeowners will be the first to benefit from the Bank's base rate changes, with analysts predicting a ripple effect.

The major high street lenders in Britain have started reducing their mortgage rates, indicating that the financial strain on households might be decreasing following the Bank of England's decision to lower interest rates for the first time in over four years.

The BOE's decision to lower its Bank Rate to 5% from 5.25% has led lenders such as and Nationwide to reduce borrowing costs.

Tracker mortgage homeowners will be the first to benefit from the savings after the Bank of England (BOE) announced a 25 basis point reduction in repayment costs by Santander, Metro Bank, Halifax, Nationwide, and HSBC.

Borrowers on standard variable rates (SVRs) will also see savings as their rates decrease from September. Santander will reduce its SVR from 7.50% to 7.25%, Lloyds from 7.25% to 7.0%, and Halifax from 8.74% to 8.49%.

Tracker and SVR mortgages are a small part of the U.K. mortgage market, with only 643,000 trackers and 624,000 SVRs among the 8.39 million outstanding residential mortgages as of Dec. 2023, according to UK Finance.

The Bank of England's monetary policy shift may result in reductions that affect the 6.93 million households with fixed rate mortgages. Last week, Nationwide became the first lender to offer a sub 4% deal on its five-year fixed rate in anticipation of this shift.

Lenders will likely offer more pricing improvements in fixed rates in order to gain market share in a highly competitive industry, according to David Hollingworth, associate director at L&C Mortgages.

Laura Suter, director of personal finance at AJ Bell, concurred that other lenders will follow suit after Thursday's decision, which marks the beginning of the BOE's rate cutting cycle.

A boost for UK property

The minimal initial savings for homeowners, estimated to be around £28 per month on tracker rates, are expected to increase confidence that Britain is exiting its cost of living crisis, resulting in positive effects on the U.K. housing market.

Sarah Coles, head of personal finance at Hargreaves Lansdown, stated that this market could convince more buyers to take a risk and purchase.

Emily Williams, Savills' director of research, stated that an increase in buyers would result in an increase in market activity in the autumn, with a predicted price growth of +2.5% for the year.

Although the BOE voted to cut rates by a narrow 5-4 margin, the future of rate cuts remains uncertain, and the central bank has cautioned that it will proceed with caution. Consequently, some analysts predict that it may take some time before more substantial savings are passed on to homeowners.

According to Suren Thiru, economics director at ICAEW, the split vote decision among rate setters indicates that this was a hawkish rate cut, which means it is unlikely to initiate a major interest rate-cutting cycle.