Bank of England Cuts Base Rate: What This Means for Mortgages, Savings, and Borrowers
The Bank of England has announced a reduction in the base rate, lowering it from 5.25% to 5%. This is the first rate cut since 2020, following a series of increases that had raised the rate from a historic low of 0.1% nearly three years ago.
Will My Mortgage Get Cheaper?
If you’re on a fixed-rate mortgage, the recent rate cut won’t affect you directly. As of last December, a significant majority of borrowers—about 6.9 million—were on fixed-rate mortgages. These borrowers will not see any change in their monthly payments as a result of this base rate cut.
For those on tracker mortgages, which are directly linked to the base rate, the cut will result in lower payments. There are approximately 643,000 tracker mortgage holders who will see their payments decrease. For instance, with the average tracker mortgage standing at £136,512 with a rate of 6.47%, a 0.25 percentage point reduction will lower monthly repayments by about £28, bringing it to £977.
Those on standard variable rates (SVRs) might also benefit if lenders choose to pass on the full reduction. Currently, the average SVR mortgage is £69,581 with a rate of 7.81%. If lenders pass on the entire 0.25 percentage point cut, monthly repayments could drop by £14.50, resulting in a new payment of £663.
Impact on New Fixed-Rate Mortgages
New fixed-rate mortgages are influenced more by market expectations than by the current base rate. While the recent cut might signal to lenders that further reductions could be on the horizon, fixed rates are generally set based on future rate expectations. Recent trends have shown rates fluctuating, with five-year fixed rates falling below 4% recently. It’s possible that the rate cut could lead to further reductions in fixed-rate mortgage offerings.
Simon Gammon of Knight Frank Finance notes, “The lenders have already cut margins to the bone, so this cut was pretty much priced into fixed rates. However, larger lenders might reduce rates further to capture market share, so we could see some additional small cuts soon.”
Should I Lock in My Savings Rate Now?
Yes, it might be wise to secure your savings rates now. While savings rates are not always directly tied to the Bank’s base rate, the recent cut is likely to affect many easy access and variable savings accounts. Fixed-rate savings bonds have seen a decline in rates recently due to expectations of future cuts. For example, top rates for one-year bonds have dropped from above 6% last September to around 5.26% now. With the base rate cut, these rates may continue to decrease, so locking in a rate now could be beneficial.
What About Loans and Credit Cards?
Most personal loans have fixed rates, so if you already have one, your interest rate will remain unchanged. New personal loans might see slight reductions in rates, but they are likely to remain higher than they were three years ago.
Credit card rates, on the other hand, are not directly linked to the base rate and lenders are not required to adjust them in response to rate cuts. Consequently, while some credit card providers might lower their rates, significant changes are unlikely.
Need Expert Advice?
Understanding changes in interest rates can be complex, especially when it comes to mortgages and property transactions. The Cygnet Law Conveyancing Team is here to offer professional guidance. Whether you’re considering refinancing, buying a new property, or need advice on how these changes might affect you, our team is ready to help. Contact us today using our callback form or on 01642 777 680 for expert support and advice.
