The Bank of England has finally made its much-anticipated move and cut rates by 25 basis points to 5 per cent.

After several months of holding rates at 5.25 per cent, and inflation hitting the 2 per cent target, this reduction had been expected by the markets. The MPC voted by a majority of five to four to reduce Bank Rate by 0.25 percentage points to 5 per cent. Four members voted to maintain Bank Rate at 5.25 per cent.

Fixed rates are influenced by future base-rate movements and therefore not directly linked to what happens this week. Indeed, this rate cut has already been factored into mortgage rates with numerous lenders reducing their fixed rates in recent days on the back of declining Swap rates, with a sub-4 per cent five-year fix now available for new purchases.

Those on base-rate trackers will find their mortgage rate reduce by 25 basis points. A borrower with a £250,000 repayment mortgage on a 25-year term and a pay rate of 5 per cent will see that fall to 4.75per cent, with monthly payments falling from £1,461 to £1,425.

With a variable-rate deal, the link between the lender’s variable rate and base-rate moves are less transparent. The lender may decide to pass on none, some, all or even less than the base-rate cut.

This rate reduction is extremely important, increasing confidence and giving the housing market, and wider economy, a welcome boost. The next question is when the Bank will move again this autumn and reduce rates further, particularly with inflation expected to edge up slightly to around 2.75 per cent in the second half of the year.

Borrowers who are due to take out a mortgage before the end of the year should plan ahead as much as possible to account for higher rates. Mortgage products can be booked up to six months before needed so speak to a whole-of-market broker, such as ourselves, to find out what’s available.