The governor of the Bank of England expects FOUR interest rate cuts next year: what would this mean for mortgage and savings rates?

The governor of the Bank of England says there are likely to be four rate cuts next year as inflation eases.

The ONS shows that inflation rose to 2.3 percent in the 12 months to September, higher than what markets had forecast.

But speaking to the Global Boardroom conference with the Financial TimesAndrew Bailey said that despite the recent rise, he is confident inflation will return to the 2 percent target soon.

Bailey then confirmed that the Bank of England’s central forecast foresees a four quarter-point interest rate cut next year.

If true, the base rate would fall from 4.75 percent, where it is now, to 3.75 percent by the end of 2025, with the Bank already cutting rates from a high of 5.25 percent since August this year.

If rates fall to 3.75 percent, it would represent a slight shift from the general market consensus, which currently expects rates to fall to 4 percent by the end of next year.

What could this mean for mortgage providers?

Those on tracker mortgages, which follow the base rate, will benefit from any reduction, while those on other variable deals should with any luck see their lenders cut rates, albeit as and when the lender sees fit.

Those nearing the end of their fixed mortgage deals over the course of next year and the year after will be hoping that mortgage rates will be lower when they refinance if the Bank of England projections come to fruition.

The fixed mortgage rate does not respond to the interest rate. Instead, they anticipate interest rate changes.

This means that future interest rate cuts by the Bank of England are already somewhat embedded in fixed mortgage rates.

This is why the lowest priced five-year fixed income products are hovering just above 4 percent, rather than above the Bank of England’s base rate of 4.75 percent.

However, if the market thinks interest rates will fall to 3.75 percent instead of 4 percent by the end of next year, there could be room for some mortgage rate cuts.

The lowest fixed interest rates are now all above 4 percent, but brokers suggest that borrowers could see interest rates below 4 percent again if rates do indeed fall to 3.75 percent.

Chris Sykes, technical manager at mortgage broker Private Finance, said: ‘This is excellent news as this is probably better than many of the market expectations and the Bank of England Governor’s statement is a very reputable source, so this is more than probably the case. are favorable and improve things such as swaps, which then affect mortgage interest rates.

“A base rate of 3.75 percent would provide the potential opportunity to see rates below 4 percent return to the market, if these are indeed accurate.”

Ravesh Patel, director and senior mortgage adviser at Reside Mortgages, agrees that four base rate cuts next year should be good news for borrowers.

“If this comes to fruition, it would represent a significant shift in the mortgage landscape,” Patel said. ‘A lower base rate would likely encourage lenders to cut rates on fixed-term residential mortgages, with some of the most competitive deals potentially falling within the 3 to 4 percent range next year.

‘However, much depends on economic conditions, including competition between lenders, swap rates and inflation trends.

No one will be happier about further rate cuts than landlords with mortgages – of which there are roughly 2 million, according to data from UK Finance.

Buy-to-let landlords typically have interest-only mortgages to ensure positive cash flows. This was all well and good when they bought investments when mortgage rates were around 2 percent.

But according to Moneyfacts, the average five-year fixed rate buy-to-let mortgage is around 5.5 percent.

On a £200,000 interest-only mortgage, moving from an interest rate of 2 per cent to 5.5 per cent means you’ll pay £917 per month instead of £334 per month.

“For buy-to-let investors, rate cuts could provide some relief after years of rising borrowing costs,” Patel said.

“Lower interest rates can improve affordability and make refinancing more viable, especially for those who fail affordability based on stress tests.

‘However, the buy-to-let sector faces unique pressures, including higher regulatory costs, stricter stress tests and changing tax rules.

“These factors could dampen a widespread reduction in borrowing costs for landlords.”

Bad news for savers

While mortgage holders will celebrate any rate cut by the Bank of England, savers, especially those without a mortgage, will feel the exact opposite.

Rachel Springall, financial expert at Moneyfacts, said: ‘Further cuts to the base rate will be devastating news for struggling savers as they are the ones who feel the force of rate cuts.

‘Those savers who use their interest to supplement their income will feel overlooked if interest rates fall further next year.

‘We’ve already seen some of the biggest high street banks cut savings rates in the wake of this year’s base rate cuts, so savers really need to check their accounts and switch if they get a raw deal.

‘Reductions in the base interest rate could create an almost apathetic attitude among savers today. Even though the average easy-access account pays just under 3 percent, banks’ base interest rates are much higher.

“Challenger banks offer attractive returns and it would be unwise to overlook them if they offer the same protection as a major bank.”

Anna Bowes, co-founder of Savings Champion, also says it’s important to remember that these are just predictions. Reality may turn out differently

“This is an interesting statement from the Governor because it is difficult to know what will happen to the economy over the next twelve months, especially given the major events coming such as a new US President and the expected trade tariffs he would can impose. , which could trigger a new spike in inflation.

‘As a result, this expectation can easily change, as has recently happened. Before the budget, markets were expecting 6.7 cuts from the Bank of England over the next 12 months, but this fell to 2.3 cuts after the budget as some of the announcements made are expected to have an inflationary impact.

‘The current expectation has risen to 3.28 cuts, presumably in response to today’s announcement.

‘As a result, it’s difficult to know what will happen next, but what we do know is that fixed rates in particular have been quite stable – and have even increased slightly recently as a result of the Budget.

‘But this news could cause interest rates to fall again, so if you can put some of your money away, it may be wise to do so sooner rather than later.’