Interest Rates Fall to 3.75% – The Lowest Level Since Early 2023

What This Means for Buyers, Sellers and Landlords

The Bank Of England has announced a reduction in the base interest rate to 3.75%, taking it to its lowest level since early 2023.

This move follows continued easing in inflation and signs of slower economic growth. While the cut itself was widely expected and has largely been priced into mortgage products already, dropping below the 4% threshold is psychologically significant and sends a clear signal that borrowing conditions are beginning to stabilise as we head into 2026.

So what does this mean in practical terms?

Why the Bank of England interest rate matters

The Bank of England base rate is the benchmark used by banks and mortgage lenders when setting borrowing costs.

In simple terms:

• When the base rate falls, borrowing generally becomes cheaper

• When it rises, borrowing tends to become more expensive

However, the base rate is not the same as the mortgage rate you personally pay. Most homeowners are on fixed-rate mortgages, and lenders often anticipate changes well in advance. As a result, the impact of a rate change is usually gradual rather than immediate.

Will this cut make mortgages cheaper?

The effect depends on the type of mortgage you have.

Tracker mortgages

If you are on a tracker mortgage, your rate should fall by around 0.25%, meaning an immediate reduction in monthly repayments. As a general guide, this equates to roughly £15 per month per £100,000 borrowed.

Variable and standard variable rate mortgages

Lenders typically pass on base rate reductions, although not always in full and sometimes with a short delay.

Fixed-rate mortgages

If you are on a fixed-rate deal, your repayments will not change today. However, mortgage rates on new fixed products have been easing for some time as lenders anticipated this cut. If your fixed rate ends within the next three to six months, it may be sensible to start reviewing options early.

Many commentators expect increased competition between lenders in early 2026, particularly for two-year fixed-rate products.

What does this mean for buyers?

This is broadly positive news.

Lower borrowing costs improve affordability, even if the immediate monthly savings are modest. More importantly, this rate cut helps restore confidence, which has been one of the key factors holding buyers back over the past year.

We are already seeing buyers who previously paused their plans beginning to re-engage, particularly first-time buyers and those looking to move home. With January traditionally being a strong month for property searches, this announcement should support renewed momentum.

What does this mean for sellers?

For sellers, the reduction in interest rates is encouraging.

Improved affordability increases the pool of proceedable buyers and helps underpin demand, particularly in the low to mid-price ranges. Confidence is just as important as cost, and this decision sends a clear signal that conditions are stabilising.

That said, buyers remain selective and value-driven. Correct pricing, strong presentation and a clear marketing strategy remain critical to achieving the best possible outcome.

What about landlords and investors?

For landlords, the picture is more nuanced.

Lower interest rates may help improve yields for those refinancing or purchasing, but this must be considered alongside wider factors such as taxation, regulation and the forthcoming Renters’ Rights reforms.

That said, easing borrowing costs could encourage renewed investor activity in 2026, particularly for well-located rental properties with strong long-term fundamentals.

 

Will interest rates fall further?

The Bank of England has indicated that interest rates are likely to continue on a gradual downward path, but future cuts will be more finely balanced and dependent on inflation and wider economic data.

Some forecasts suggest further reductions during 2026, while others expect rates to stabilise for a period. What does appear clear is that the peak in interest rates is now behind us.

Our view at Normie Estate Agents

This rate cut will not transform the market overnight, but it is an important step in the right direction.

Combined with easing inflation and greater economic clarity following the Budget, it provides a stronger foundation for confidence as we move into 2026.

If you are considering buying, selling, upsizing, downsizing or investing, now is a sensible time to review your position and plan ahead rather than trying to time the market perfectly.

Speak to Our Fee-Free Mortgage Broker

If you would like to understand how the latest interest rate changes could affect you, we can arrange for our fee-free, independent mortgage broker to give you a call.

There is no obligation, and the conversation is completely free of charge. They will take the time to understand your circumstances and explain your options clearly, whether you are buying, remortgaging, investing or simply planning ahead.

👉 Request a call from our fee-free mortgage broker here:

https://www.normie.co.uk/landing/unlock-the-best-mortgage-deals

Important note on advice: Please note that Normie Estate Agents cannot provide legal, financial or mortgage advice. Every individual’s circumstances are different, and professional advice should always be sought before making any financial decisions.