Bank of England cuts interest rate – what this means for your finances

This is a financial promotion and is intended to provide information, not investment advice.

The Bank of England has cut the base rate by a quarter of  a point, taking it to 3.75% from 4%.

The decision to reduce it by 0.25  percentage points is the fourth cut in 2025 and follows a reduction in August to 4% from 4.25% where it had been since May.

A change in interest rates impacts finances whether you’re a saver, borrower or investor.

Savers

Savers will be hit by rate cuts in the aftermath of the base rate cut as they will see lower returns on their cash deposits. This changes the relative appeal of cash over other kinds of investments such as peer-to-peer and the stock market. It also highlights the importance of utilising tax-free saving and investment vehicles, so you get to pocket all of the interest earned or investment returns.

Those savers, however, who took advantage of fixed-rate deals over the past year have been rewarded, locking in returns ahead of any downward base rate moves.

On average inflation has outpaced the average savings account this year .

Borrowers

Lower interest rates are good news for borrowers because credit becomes cheaper for individuals - and companies.

This most recent cut should take borrowing costs to their lowest level since early 2023.

Mortgage borrowers will be particularly buoyed by the news. Those on tracker or variable mortgages will be pleased that their monthly repayments will drop, and those soon to come off their low-rate five-year fixed deal will face less of a repayment hike when they come to choose a new deal.

Indeed, millions of borrowers are due to refinance in 2026. According to UK Finance, 1.6 million fixed rate mortgages expire d in 2025 and even more at around 1.8 million are due to expire in 2026.

The average standard variable rate (SVR) currently stands at 7.49% - though this will likely fall shortly after today’s cut. 

Investors

A great deal of disruption isn’t typically  expected for stock markets as long as interest rate moves are gradual. It’s only steep moves that could spark a major upheaval. Markets have been expecting the base rate cut but will be keeping an eye on the likelihood of more next year. 

Property market

Interest rate cuts are good news for aspiring homeowners, borrowers looking to remortgage and landlords.

Early indications suggest a post-Budget bounce in the market could be coming as we now have more certainty.

Buyers who had been adopting a ‘wait and see’ approach until the Budget in November was done and dusted are starting to return to the market, along with investors who see opportunities returning as buy to let yields start to become more attractive again  .

Regardless of the absence of any stamp duty relief from the Budget, sentiment is improving and we expect to see a steady release of pent-up demand coming through now as confidence continues to build through the new year.

Halifax reported that comparing property prices to average incomes, affordability is now at its strongest since late 2015. When factoring in today’s higher interest rates, mortgage costs as a share of income are at their lowest level in around three years.

Halifax said property prices will rise modestly in 2026, by between 1% and 3%, and Nationwide was more optimistic predicting growth of between 2% and 4%.

And competition in the mortgage market is fierce. Lenders have been vying for business and cutting rates left, right and centre. Rates on two-year fixed-rate deals are inching towards 3.5%.

easyMoney’s CEO Jason Ferrando said: “Inflation remains one of the biggest threats to savers, who also face paying more tax on their deposits with income tax thresholds frozen that could haul millions into higher tax brackets. This could mean losing half of their personal savings allowance which is at £1,000 for basic rate taxpayers but just £500 for those in the higher rate band.

“While the Bank of England base rate has dropped four times in 2025, we haven’t cut our interest rates for investors.

“We are continually paying interest to our investors and providing them with new opportunities to invest in British property lending. The property market is well positioned for momentum to pick up in 2026.

“We have a proven track record of performance over almost a decade and we are proud to say that no investor has ever lost a penny of their capital by investing with us.

“Our investors value our conservative lending approach and the experience of our team. We are very proud of our incredibly diligent underwriting process which has allowed us to offer loans of high quality to retail, high-net worth and corporate investors across the UK.”

easyMoney offers P2P investments in the UK to a range of investors, with a minimum investment threshold of just £100.

*Capital is at risk. Past performance is no guarantee for future results.

Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future.