Recently, the Bank of England cut interest rates from 0.5% to an all-time low of 0.25%, the first time the rate has changed since 2009. Mark Carney, the Governor of the Bank of England, said lenders “have no excuse” not to pass on the rate cut, having also made additional funding available for banks and building societies at very low rates on the condition that savings are passed on to borrowers.
What impact will the rate cut have?
• Lenders are likely to lower mortgage interest rates for buyers and those who are re-mortgaging.
• Existing mortgage holders on variable rate or tracker mortgages should see repayments go down.
• The pound has fallen further against the euro and dollar, making foreign holidays more expensive but also making UK residential property even more attractive to overseas buyers.
• Savings rates will fall, incentivising savers to invest in other assets, including property, in order to get a better return on their money.
• Consumers should benefit from lower interest rates on credit cards and loans.
Why has the Bank of England lowered the base rate?
• To boost the economy and encourage banks to lend.
• To give people and businesses the confidence to spend and invest.
• To keep the housing market moving and mortgages affordable.
While there are many factors involved in trying to predict how long interest rates will stay at 0.25%, the Bank has also indicated that it may soon cut rates again, to “close to zero”. This will incentivise banks to lend and should mean mortgages stay highly affordable for the foreseeable future. However it seems very unlikely that the Base Rate will enter negative territory, as has happened recently in some European countries and Japan.