Why mortgage rates don’t always drop when the base rate does?

The Bank of England’s Monetary Policy Committee (MPC) is the group responsible for setting the bank base rate (BBR). This interest rate influences the cost of borrowing for banks and the rates they offer on loans, mortgages and savings, with the aim of helping to control inflation.

When the committee meets - roughly every six weeks - all eyes are on its decision. Based on a number of UK and global economic factors, the MPC will decide whether to raise, hold or cut the base rate.

You may expect a cut to the base rate to mean an instant cut to mortgage rates - however, this isn’t always the case. In reality, the base rate is just one component that influences the mortgage rates offered by a lender.

Swap rates

Another factor is something called ‘swap rates’ – the rate lenders pay to access money to lend. Think of these like the stock exchange - they fluctuate all the time depending on economic conditions, global factors, market expectations and sentiment. If swap rates increase, then so does the cost for lenders to lend money.

When the economy is stable and inflation is on track, a decision to cut the base rate can cause swap rates to fall and almost instantly bring mortgage rates down. However, if swap rates become unsettled by economic events, future expectations for inflation or challenges abroad, a cut to the base rate may not be enough to calm swap rates, causing the cost for lenders to borrow money to increase.

What about trackers or SVR?

It’s important to note that these swap rates mainly impact fixed rate mortgages. A cut to the base rate will be felt almost immediately by those who are on either a tracker mortgage (a flexible rate that follows the bank base rate) – or a lender’s Standard Variable Rate (SVR) (a changeable rate set by the lender typically after your fixed rate comes to an end).

However, the majority of homeowner mortgages are on a fixed rate contract. According to UK Finance this figure is 85%, with the balance on Tracker or SVR mortgages.

Approved by The Openwork Partnership on 31/07/2026