Will I Save Money On My Mortgage?

Interest rates have fallen for the 4^th time this year as the Bank of England reacted to a sharper than expected downturn in inflation. It should mean a fall in the cost of mortgages for many people.

Q: Will all mortgages fall in cost as a result of this news?

A: The base rate has been cut to 3.75% from 4% by the Bank of England. This rate is used by the central bank to charge other banks and lenders when they borrow money.

However, most mortgage borrowers hold fixed-rate deals, so will see no immediate impact from the decision. Almost three quarters of deals are fixed -  74% according to data from 2021).

Those on tracker and variable deals are likely to benefit from lower rates in the coming days. Nationwide, for instance, said borrowers on its standard mortgage rate would see a reduction of 0.25 percentage points from the start of January. 

The lowest-rate residential deals quoted by Moneyfacts include:

Santander:

Two-year fix at 3.51 per cent (Deposit of at least 40% required)

Five-year fix at 3.72 (Deposit of 10%)

Nationwide

Two-year fix at 3.98%

Five-year fix at 4.16%

Q: So is it right that the majority of people won’t benefit then, if they are mainly on fixed deals?

If you are on a fixed deal – then you are right – there will be no immediate change.

But there are other advantages beyond the rate itself.

1. Budgeting certainty & cash-flow control

Your monthly payment stays the same for the fixed period, which makes:

• household budgeting simpler

• longer-term planning easier (school fees, childcare, renovations, savings)

• life less stressful if money is tight or variable elsewhere

This is often the biggest non-rate benefit for families and self-employed borrowers.

2. Protection from shocks (not just rates)

Even if rates don’t rise dramatically, fixed deals protect you from:

• sudden BoE hikes

• lender-specific SVR jumps

• political or market shocks that affect mortgage pricing

You avoid being exposed at exactly the wrong moment.

3. Psychological value (sleep-at-night factor)

There’s a real, non-financial benefit:

• no checking rate announcements

• no “what if rates jump again?” anxiety

• less temptation to time the market

This is especially valuable if you already deal with uncertainty elsewhere (self-employed income, bonuses, investments).

4. Easier long-term planning & commitments

With a fixed payment you can confidently:

• lock in other financial commitments

• plan major spending (extensions, cars, school fees)

• model future finances accurately

This is useful if you’re running spreadsheets or doing scenario planning.

Q: For the ¼ of people on variable rates – will their mortgage payment fall?

If you’re on a tracker mortgage, or a variable rate mortgage that follows Base Rate changes, this month’s Base Rate reduction will mean your monthly payments will take on this drop.

The reduction is equivalent to roughly £180 a year lower repayments per £100,000 of mortgage debt.

Q: What evidence is there about how savvy we are in looking for the best deal?

The FCA ran a study in 2022 that claimed that 370,000 mortgages holders could save an average of £1,240pa for 2 years by switching to a 2-year fixed rate with their existing lender.

There also seems to be a huge number of people on what are generally very poor SVR deals. Around half a million people (509,000 ) are on SVR deals, which suggests they might save a lot of money by shopping around.

According to UK Finance’s figures, around 1.8 million fixed-rate deals are due to expire in 2026.  So they really should start looking around for the best replacement deal – soon.

Q: Are there any easy rules about how to get the best mortgage deal?

A: Not being loyal is the best rule of thumb, generally.  

On a variable mortgage, where the rate moves in connection with the Bank of England base rate, there is usually a discounted period.

The Discounted variable rate is a set discount off the lender’s Standard Variable Rate (SVR) for a period. SVRs are usually uncompetitive. Even a short spell on it can cost hundreds or thousands.

Check your current lender first

You may be able to do a product transfer:

• Possible simplified or no legal work

• No affordability checks (usually)

• Faster and simpler

Compare remortgaging deals

Look at:

• Interest rate

• Fees (arrangement, valuation, legal)

• Total cost over the fixed period, not just the headline rate

A slightly higher rate with lower fees can be cheaper overall.

Start early

You can usually secure a new deal 3–6 months in advance and switch later.

• Protects you if rates rise

• You can often change again if rates fall before completion

Q: What is likely to happen to property prices?Savills expects house price growth to remain in the low single digits next year, regardless of improved affordability. “While interest rates are expected to continue to edge down, weak economic growth is likely to act as a drag on buyer confidence, with a weak labour market limiting the capacity 

The financial markets are forecasting another Base Rate cut in 2026, with potentially two cuts on the cards across the Bank’s eight meetings. But they are likely to be small cuts and could be reversed if the economic climate changes.

---

JOIN THE MONEY DOCTOR - ADAM SHAW -

EVERY MONDAY ON TIMES RADIO AT 3:45PM

For more commentary follow me on Twitter/X and BlueSkySocial @adamshawbiz

Please remember everything on this site is journalist commentary and is not financial advice or guidance in anyway.

If you want to contact me - send an email via here