Money expert Martin Lewis has issued a warning to people with savings or with mortgages after the Bank of England announced a cut to its base rate.
Today, the Bank of England cut the base rate by 0.25 percentage points to 4.75 percent.
This base rate has a knock-on effect on the whole of the UK’s financial system, affecting mortgage rates, savings rates and effectively moving money in and out of people’s pockets as a way to manage inflation.
Now Martin Lewis has given his response to the BoE base rate cut and what it means for people with mortgages and/or with savings in the bank.
It’s good news for anyone with a tracker mortgage, or who is about to remortgage, because rates are getting slightly cheaper, but less good news for savings, as many variable accounts will cut the amount of interest they offer following the base rate cut, meaning you’ll be paid less interest.
Martin said: “Mortgages: Tracker rates will get cheaper by roughly £15 per month per £100,000 (variable and discount rates should drop too but don’t have to go by [the] same amount).
“Your fixed rate mortgage will not change. Though the rate you can fix at may get cheaper (although as they’re based on predictions of future interest rate some of this cut is already baked in).
“Savings: Easy access rates are usually variable, so both cash ISAs and normal savings, will likely drop by around 0.25% points, though as it’s competitive at the top, some of the best may leave it a little later to drop.
“Your fixed rate savings will not change.”
Similar to with mortgages, Martin advised that some of the cut is already baked into the current rates too, as they are partly based on predictions of future interest rates, so the drop may not be instant or affect everyone.
Around 629,000 outstanding homeowner mortgages are trackers, which follow the movements of the base rate, while 693,000 are SVR deals.
Borrowers end up on an SVR after their initial mortgage deal ends.
Four-fifths of outstanding homeowner mortgages, totalling 6,882,000, are fixed-rate deals.
Homeowners on fixed-rate deals will not see any immediate change in their payments.
Some mortgage holders are yet to feel the impacts of the spate of base rate increases which started three years ago. The increases were followed by two cuts, the first of which happened during the summer and the second on Thursday. It means that some homeowners are still facing the hurdle of re-mortgaging onto higher rates than they have previously been used to.
Andrew Montlake, managing director of Coreco mortgage brokers, said: “Whilst this cut will be welcomed by all those looking to buy or remortgage in the near future, it is important to note that this does not necessarily mean that mortgage rates will drop substantially in the short-term.”
He added: “However, the good news is that this shows the Bank of England is confident that even amongst all the uncertainty they have now tamed inflation sufficiently to be able to continue with their longer-term plans to reduce interest rates.”