The base UK interest rate has been cut for the first time in more than seven years – it’s now set at a record low of 0.25%.
The Bank of England’s decision to cut the base rate from 0.5% is believed to be a bid to boost the economy after the majority of the UK voted to leave the EU in June. Early data caused concern that Britain might be heading for another recession after the vote.
This is the first time the base interest rate has changed since 2009. With this in mind, we take a look at what this rate cut could mean for you.
This should come as good news for first time buyers, as the base rate going down could mean that mortgage rates go even lower. If you’re looking to take out a mortgage, you should see some attractive deals appear on the market.
It could be worth considering a fixed rate mortgage now that the base rate has fallen so you can lock in to a cheaper deal. But remember, fixing your mortgage won’t just mean that you’re unaffected by any interest rises for the length of the fix, but also any falls in interest rates. It’s unlikely that the base rate will fall any further but that doesn’t mean lenders won’t start to cut their rates further to compete.
The mortgage that you’re currently on will determine how this rate cut will affect you. People on tracker mortgages (those that directly track the Bank of England base rate) will benefit from this cut from today.
Base rate mortgages – which are typically set around 2% above the base rate – will see their repayments drop from 2.5% to 2.25%. And that’s not all – interest-only mortgages will see lower rates on repayments too. Those on fixed-rate deals won’t benefit from the reduction until their current mortgage term ends.
Today’s interest rate cuts come as more bad news for savers, with low returns on savings likely to continue. But it might not be as much of a worry if you have a fixed rate account, as you should be protected from rate fluctuations.
This rate cut was largely expected and some lenders have already withdrawn their best value savings deals from the market. Research from Savingschampion shows that in May, June and July, 485 accounts cut interest rates for savers.
A further 117 accounts have been told that they will be reducing rates between August and December, with the biggest cut set to be 1.5%.
With that said, it’s important to remember that a cut isn’t guaranteed – some providers will offer better deals than others. If you’re unhappy with the return you are getting on your savings, it could be worth looking around and seeing what other deals are out there.
Be aware though – there is always the risk that you move to a firm that then drops its rate.
Going on holiday soon? The value of the pound has already fallen as a result of today’s announcement which could mean that you’ll get less for your money when heading abroad this summer.
Make sure to shop around for the best exchange rate before you buy.