Thousands of mortgage holders could save nearly £350 a year following interest rate cut

Thousands of tracker holders across the UK are set to see their monthly repayments fall by nearly £29, following the . According to UK Finance, the average monthly saving for those on tracker deals will be £28.97, amounting to almost £350 a year based on typical outstanding balances.

Borrowers on standard variable rate (SVR) mortgages could see smaller reductions, with average monthly payments falling by £13.87 - a potential annual saving of nearly £170, assuming lenders pass on the full rate cut. SVR mortgages typically apply after an initial fixed or discounted deal ends, with rates set at the lender's discretion.

In response to the recent inflation slowdown, the Bank of England slashed its base rate from 4.5% to 4.25% last Thursday. Many lenders have been reducing their rates in recent weeks, with several now offering deals below 4%.

However, those on fixed-rate mortgages, which comprise approximately 85% of all outstanding mortgages, will not be affected by this rate change until they choose a new mortgage product.

Current data from UK Finance indicates that about 1.6 million fixed-rate mortgage agreements are set to expire -or have already expired -in 2025.

David Hollingworth, associate director at L&C Mortgages, said: "The good news for fixed-rate borrowers coming to the end of a deal is that rates have been falling. That's because today's cut was so widely expected that it's already allowed lenders the chance to improve their rates. There's still plenty of tweaking of rates in the market but fixed rates are looking to predict what will happen rather than react to base rate movement."

Rachel Springall, a finance expert at Moneyfactscompare.co.uk, noted: "The driving force behind the recent falls (in mortgage rates) has been volatility in swap rates, with lenders rushing to pass on cuts to fixed rates in their range. This momentum has led to the average two-year fixed rate dropping to its lowest point since September 2022."

She mentioned that this period was right before "the notorious fiscal announcement, or 'mini-budget', that saw markets panic and mortgage rates skyrocket".

Ms Springall said: "The mortgage market is undoubtedly calmer now by comparison, despite a rush to reprice fixed deals, but lenders are going to have to work incredibly hard in the coming months to balance new business and keep a close eye on their rate margins."

According to figures from Moneyfactscompare.co.uk, the average two-year fixed-rate mortgage at the beginning of May stood at 5.18%, the five-year fix average was 5.10%, and the standard variable rate (SVR) was 7.58%.

Ms Springall advised: "Those borrowers coming off a cheap fixed rate would be wise to refinance or risk seeing their monthly repayments soar by falling onto a higher 'revert rate'.

"Despite consecutive falls to the average standard variable rate (SVR), the incentive to switch remains," says Ms Springall. She added: "There is an expectation that the Bank of England base rate will be cut several times before the year is over, due to wider economic uncertainty and concerns over inflation.

"Those borrowers concerned about their homeownership aspirations will need support and innovation from lenders. First-time buyers are the lifeblood of the mortgage market, and they are essential to keep the market moving."

The rate cut could potentially stimulate more buyer interest in the housing market, following the recent conclusion of a stamp duty holiday.

The Royal Institution of Chartered Surveyors (Rics) reported on Thursday that home buyer inquiries and sales declined in April. However, figures released by Halifax on Thursday suggested that house prices are persistently climbing.

It documented a 0.3% month-on-month price increase in April, following a 0.5% monthly drop in March.

The annual house price growth rate nudged up to 3.2% in April, from 2.9% in March.

The average property price in April was £297,781, an increase from £296,899 in March, according to Halifax.

Richard Donnell, executive director at Zoopla, commented: "Today's base rate cut is welcome news for people looking to sell and buy homes in 2025. It will provide a boost to market sentiment and filter slowly into lower mortgage rates as the cost of fixed-rate mortgages already reflects future cuts in the base rate."

Matt Smith, a mortgage expert at Rightmove, added: "A fresh round of mortgage rate reductions could be a boost for buyer demand as this year's spring selling season approaches its end."