Bank of England cuts interest rates – here’s how much it will save you
The Bank of England said 'The Bank of England’s role is to help UK businesses and households manage through an economic shock. These measures will help to keep firms in business and people in jobs and help prevent a temporary disruption from causing longer-lasting economic harm'.
The Bank of England base rate has been cut from 0.75% to 0.25%, which means it is back to the historic low last seen between August 2016 and November 2017.
What does an interest rate cut mean for me?
Below we have summarised how an interest rate cut could affect you.
Those looking for a new property
Over the coming weeks you should see lenders offering better deals, in fact, when rates were previously as low as 0.25%, some banks were offering rates below 1% for some two-year fixed-rate deals. The best two-year deals are currently around 1.20% and these are expected to be bettered as competition intensifies in the wake of the recent rate cut. Five-year fixed rates are also expected to come down with many predicting that they could come close to its previous record low of 1.29% in 2017.
In short, there will never be a better time to get onto the housing ladder and so the rate cut is good news for new buyers.
Those on a fixed-rate mortgage
If you have a fixed-rate mortgage then your mortgage repayments won't change as a result of the rate cut. That said, it may be worth checking to see when your deal runs out as you may be able to remortgage to a better rate. Make sure that you check with your current lender to see if any 'early repayment charges' apply.
Those on a mortgage that has moved to the Standard Variable Rate (SVR)
If you are on a Standard Variable Rate (SVR) then you may see a reduction to the amount you pay each month, however it is at the lender's discretion and so is not guaranteed. You may need to check your mortgage documents for clarification or even better, consider remortgaging as you may be able to take advantage of the competitive rates that will undoubtedly appear in the coming weeks. Check out our article 'Remortgaging in 2020 - is now the right time to fix and for how long?'
Those on a repayment tracker mortgage
If you are on a repayment tracker mortgage (a mortgage that tracks the base rate and repays both capital and interest) then you should see a reduction in your monthly payments. Check with your lender to see how long it takes for the reduction to take effect and check our table below to see how much the rate cut could save you.
Those on an interest-only tracker mortgage
If you are on an interest-only tracker mortgage (a mortgage that tracks the base rate and pays interest and no capital) then you should see a larger reduction in your monthly payments. Check with your lender to see how long it takes for the reduction to take effect and check our table below to see how much the rate cut could save you.
Those with buy-to-let mortgages
As almost all buy-to-let mortgages are lent on an 'interest-only' basis, a rate cut will mean a reduction in the amount a buy-to-let landlord would pay each month. Check out our table below to see the approximate savings that could be made as a result of the recent rate cut.
Monthly savings as a result of the recent Bank of England rate cut from 0.75% to 0.25%
|Potential monthly savings as a result of a rate cut of 0.5% on a £100,000 mortgage||Potential monthly savings as a result of a rate cut of 0.5% on a £250,000 mortgage|
You can use our mortgage interest rate calculator to work out how much you could save.
What does the rate cut mean for savers?
The recent rate cut provides further bad news in what was already a tough time for savers. The best savings rates are likely to be removed in the coming days and so you may need to act fast to take advantage of the best rates, or alternatively look at products that lock your money away for longer. Check out our savings 'best buy' tables for the best deals.
Whichever type of mortgage you have, with rates back down to record lows of 0.25%, now is a great time to consider fixing your mortgage. Another reason for acting quickly is that we don't know how long this low rate will last. When questioned about the reasoning behind the emergency rate cut, the Bank of England said 'Although the disruption arising from Covid-19 could be sharp and large, it should be temporary'. This is perhaps a hint that the rate cut itself could be a temporary measure.
Don't make the mistake of waiting for the Bank of England to raise interest rates before making your decision because by that point, the best fixed-rate mortgage deals will have gone. A good mortgage broker should be able to talk you through your options and if you don't currently have a mortgage broker in mind, then check out our Habito review. Habito is an online fee-free mortgage broker that can track and advise on over 20,000 products in order to get the best mortgage deal for you.
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