At midday yesterday, the Bank of England’s Monetary Policy Committee voted unanimously to cut the base rate to 0.25%1: previously unchanged from its historic low of 0.5% since March 2009.2 This cut will take the base rate to its lowest in over 300 years.5
This comes as part of Mark Carney’s monetary policy stimulus package this summer. His aim: to ward off a recession brought about by the economic shock from the vote to leave the EU last month.2 They also voted to increase the amount of quantitative easing by £60 billion, as well as buy £60 billion in government bonds and £10 billion on corporate bonds, as part of the package.6
As a result of this cut to the base rate, lending between banks is now cheaper, which will likely lead to mortgage rate cuts. This will be further compounded by the introduction of the new Term Funding Scheme, designed to mitigate against a fall in banks’ margins from the cut. Up to £100bn will be supplied from central reserves. Lending at levels near the base rate, the hope is to encourage lenders to pass on the interest rate cut to households and businesses.7
The drop in the base rate follows last month’s announcement that the Financial Policy Committee is reducing capital liquidity buffers. Lenders can now make greater use of the reserves built up since the financial crisis. This will improve their lending flexibility to UK households and businesses, taking some of the pressure off.2
How might the base rate change affect you?
- Tracker mortgages – If your mortgage is a Bank of England base rate tracker mortgage, the cost will fall following the base rate cut, making this decision good news.
- Fixed rate mortgages – Your current mortgage rate will not be affected. However, if you are considering a new fixed rate, the reduction in the Bank of England base rate will mean that the new rates coming to the market could now be lower.
- Standard Variable rate (SVR) mortgages – For those of you who have come to the end of your initial mortgage period and are now on the lender’s Standard Variable rate, you could get a much lower rate if you remortgage. Has there ever been a better time to remortgage?
- Discounted rate mortgages – For those of you on a Discounted rate, where you receive a discount from the lender’s SVR, you are at the lender’s mercy as to whether or not they will pass on the full or any reduction following the base rate change today. If you want to see what other options may be available, please call the number below.
We specialise in arranging mortgages over £500,000 and have relationships with over 84 global lenders. If you are considering remortgaging, or are purchasing a new property and would like to find the best rates, call us on 020 7519 0915 or send us an email to speak to one of our experienced Mortgage Managers.
1 http://www.bankofengland.co.uk/Pages/home.aspx
2 http://www.bankofengland.co.uk/publications/Pages/fsr/2016/jul.aspx
4 https://www.theguardian.com/business/2016/jul/10/bank-of-england-considers-interest-rate-cut-to-tackle-brexit-crisis
5 http://www.thisismoney.co.uk/money/news/article-2572183/Five-years-0-5-rates-What-meant-borrowers-savers.html
6 http://www.bbc.co.uk/news/business-36976528?error_code=4201&error_message=User+canceled+the+Dialog+flow#_=_
7 http://www.ft.com/cms/s/0/0d729692-5a1a-11e6-9f70-badea1b336d4.html#axzz4GMi4xIlG
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