Bank of England cuts interest rate – consumer credit industry reaction

The Bank of England’s Monetary Policy Committee (MPC) has voted to cut the base rate by 0.25% to 4.75%.

MPC voted 8-1 to cut rates, with the dissenter preferring to leave cuts unchanged at 5%. Inflation is expected to increase to around 2.5% by the end of the year, from 1.7% in September.

Steve Vaid, Chief Executive of the Money Advice Trust, the charity that runs National Debtline, said “The drop in interest rates provides some slight relief to households and small businesses. But the financial strain – particularly for those who’ve already seen their mortgage costs soar– remains significant.

“At National Debtline, we are still seeing too many people struggling to afford the essentials. As the colder months set-in and higher energy prices baked in, it is set to be difficult winter for many.

Andrew Gall, Head of Savings and Economics at the Building Societies Association said “As we expected the MPC has today cut the Bank Rate to 4.75%. This is likely to give a boost to consumer confidence and lead to an increase in housing market activity.

“However, shaving 0.25% off the Bank Rate will not be a magic wand for those trying to take their first step onto the property ladder. First-time buyers, who are critical for a properly functioning housing market, say that they are unable to afford homeownership. The BSA’s Property Tracker Report shows that raising a deposit and affordability of monthly mortgage payments are the biggest barriers to buying a home, and have been for many months.

“It’s a different picture for those who are already mortgage borrowers who will welcome today’s announcement. Whilst those coming to the end of their fixed rate mortgage term still face a significant increase in their mortgage payments, the vast majority of existing borrowers are not worried about maintaining their mortgage payments. Just 2% said they are not at all confident they can keep up their repayments in the Property Tracker Report.

“Anyone who is concerned that they may experience financial difficulties in the coming months should contact their lender as soon as possible, preferably before missing any payments. Lenders have a range of practical, tailored support available to anyone who may be struggling.

“Savers may be a little disappointed at the Bank Rate cut. However, with inflation below 2% (1.7%), most best buy savings rates, even with the latest cut, are likely to remain higher than inflation, meaning most savers will continue to enjoy real returns on their savings.”

Ben Allkins, Head of Mortgages and Protection at Just Mortgages, said “Even in the wake of the recent Budget, market forecasts have remained really optimistic about the prospects of a subsequent cut to the base rate – especially as inflation has continued to improve. It has long been on the cards and is hugely welcome as potential buyers snap out of their pre-Budget holding patterns and get their moving plans back on track.

“The hope is that positive movement on the base rate will rub off on swap rates and will give lenders the platform to review their pricing. Ultimately though, lenders do need to lend and today’s decision will certainly influence their decision making as they look ahead to their end-of-year lending targets.

“While it is easy for borrowers and brokers to get bogged down in elements of the Budget, this is a really positive headline that we need to be sharing with our customers. Brokers play such a critical role in educating clients about changes in the market and the many opportunities still available. If we are proactive, we can be that driving force in reigniting consumer confidence and ensuring a positive end to the year.”

Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said “The Bank of England has delivered one more cut for the road, before it’s widely expected to shut up shop for a while and wait for the dust to settle. This comes as no surprise, after inflation fell below target, services inflation backed off and wage rises slowed.

“However, there’s a growing expectation that we won’t get a December cut. The Bank has said for a long time that inflation will rise as the impact of energy price cuts drops out of the figures. However, events of recent weeks have raised the risk of additional inflation.

“More borrowing in the Budget, a higher national living wage and rises in employer National Insurance contributions, have raised concerns that inflation could make an unwelcome return. The Bank estimates it will add around half a percentage point to inflation at its peak. However, it emphasised that we don’t yet know how much of higher employer costs will pass into prices and how much will be absorbed by businesses.

“In this environment, the Bank is wary of cutting rates further and fuelling more spending. The MPC report pointed out that rates would need to be high enough for long enough, until the risks to inflation returning sustainably to 2% are resolved. It added that it would “decide the appropriate degree of monetary policy restrictiveness at each meeting.” All of this points to slower cuts in 2025, and even a willingness to raise rates if needs be.

Simon Webb, Managing Director of capital markets and finance at LiveMore, said”The Bank of England’s decision to reduce the Bank rate to 4.75%, offers encouraging news for older borrowers. For those over 50, who often face unique financial considerations, this rate cut could ease monthly repayments.”

“Combined with measures from last week’s Budget, such as a 4.1% increase in the state pension from April 2025, today’s decision can enhance financial stability for the older generations and help with affordability and choice in the mortgage market.“

Melanie Spencer, Sales and Growth Lead at Target, said “Following an unchanged picture last quarter, it is great to see the number of arrears cases now reducing for both homeowners and for buy-to-let. With the first base rate cut helping to start this positive momentum, the hope is that a similar decision today will sustain this and we see borrowing pressures continuing to ease and cases reducing further.

“There are still real difficulties though and lenders mustn’t forget those borrowers stuck in sizeable arrears. At more than 10% of the balance in arrears, homeowners and landlords facing these difficulties have very little movement and absolutely need urgent support from lenders. In supporting these customers, lenders need the right systems in place to manage this process proactively and provide a much need resolution for the borrower and for the lender too.

“From our own experience working with lenders, we know that repossession is always the very last tool they use. It’s encouraging to see today that they still make up a very small proportion of the overall borrowers and properties in arrears. Early contact and remediation is absolutely key in keeping repossession a last resort and achieving better outcomes for all parties.”

Paul Noble, CEO of Chetwood Bank said “This is very welcome news. Following the Budget, in which property ownership came under the spotlight, today’s decision brings some positivity to the mortgage market.

“Looking at the bigger picture, there are challenges for landlords to wrestle with, whether that’s the Stamp Duty surcharge, tax changes or regulatory reform, but the buy-to-let market has consistently shown itself to be resilient in the face of adversity. Ultimately, it’s the cost of borrowing that will be the major influence on people’s property buying plans, so today’s cut – and the hope of more to follow – will encourage greater market activity among landlords and homebuyers in the coming months.

“To allow momentum to build, and to effectively support buyers re-entering the market thanks to a falling base rate, it’s crucial that lenders are focused on delivering certainty. Brokers want lenders they can trust and pain-free applications – providing that will be key if the market is to restabilise after all the uncertainty surrounding the Budget.”

Richard Carter, CEO of Lenvi said “Borrowers will feel even more reassured by interest rates dropping further to 4.75%, following the Autumn Statement last week. The announcement of stabilising inflation rates and people breathing a sigh of relief after no increases to Capital Gains Tax for residential properties should help to stimulate growth in the housing market. While we need to be cautiously optimistic, these measures in principle should stabilise mortgage rates, which will start to restore home buyer confidence and make it easier for first-time buyers to achieve home ownership.

“Our latest research on consumer habits found that four in ten (39%) borrowers listed ‘low interest rates’ as their biggest priority when choosing a lender. With this in mind, many of our customers will likely be anticipating increased mortgage activity, and will need to prepare to scale, ensuring they have the correct processes and quality systems in place.”