Current rate of interest UK
Borrowers with tracker mortgages are likely to see their monthly payments reduce after a base rate cut. Photograph: Alamy
What will a rate cut mean for my mortgage?
If you are on a tracker deal, the impact will come immediately after the Bank base rate is cut. For example, Nationwide building society has just under 600, 000 people on its “base mortgage rate”, which is 2% above the Bank base rate. “There is no floor, so if the Bank rate was cut, then the rate would reduce, ” says a spokeswoman.
Someone with a £150, 000 Nationwide mortgage would see their repayments cut from £673 a month to £654 if Carney cuts interest rates to 0.25%. If he slashes them to zero, the mortgage cost drops to £636.
The impact is even bigger if the borrower has an interest-only mortgage, although these have largely disappeared since the credit crunch. They would see the cost of servicing a £150, 000 loan drop from £313 a month to £281 at a base rate of 0.25%, dropping to £250 if interest rates hit zero.
What will happen to fixed-rate mortgages?
Nothing if you are already on one, as your rate is pegged until the mortgage term expires. But if you are about to buy, expect some seriously good deals in the next few weeks.
“All fixed rate deals should start coming down, ” says Ray Boulger of mortgage broker John Charcol. “We will see many more two-year fixed-rate deals below 1% and five-year deals under 2%.” He adds that we may also see “once in a lifetime” 10-year fixes emerge.
Could negative interest rates mean my mortgage goes below zero?
Dream on. In 2007-08 Cheltenham & Gloucester had a tracker deal at Bank base rate minus 1.01%. When the base rate went to 0.5%, on paper, that suggested borrowers would have to pay -0.51%. Instead, C&G cut the rate to 0.01% - its computers could not handle mortgages at 0% – but did not actually go negative.
But note that in money markets, negative interest rates have nearly arrived. Immediately after Carney spoke, yields on 10-year gilts dropped to 0.89%, while on two-year money, the rate is now just 0.12%. If it falls much lower, it effectively means people are paying the government to lend money to them.
Will all mortgage lenders pass on the cut?
No. Carney was clear that any rate cuts aren’t likely until this summer. Many banks have not reduced their standard variable rates (SVRs) to anywhere near the 0.5% base rate. Halifax’s SVR is 3.99%, Barclays’ is 4.99%. But all the action is in fixed and tracker deals, with the SVR largely irrelevant to most borrowers today.
I’m about to fix – should I reconsider? And cut the price I’m offering to the vendor?
You may want to try finding a better deal. At John Charcol, brokers say that if a lender drops its fixed rates ahead of a completion, it can generally get the borrower onto the new rate.
Boulger says: “If you are in the process of buying, see if you can negotiate a lower price in the light of the current uncertainty. But you can get your mortgage sorted out now. We are saying that we will keep an eye on rates and if they move before completion, we will do our best to move you onto that rate.”
What will a rate cut mean for house prices?
Post-Brexit, there has been much talk of house price falls; KPMG said prices nationally would drop by 5%, and more in London. There has also been anecdotal evidence of buyers dropping out of deals. But a rate cut may stabilise the market, with nervous buyers happier about going ahead.
Will interest rates on my savings account now disappear?
Savings rates had been falling anyway, even though the Bank base rate has been static at 0.5% since 2009, and now it seems almost inevitable that they will fall to new lows. That spells more pain for Britain’s millions of savers.
According to financial website Moneyfacts.co.uk, the average easy-access cash Isa rate has fallen by 0.11% in six months to just 0.98%, the first time on record it has fallen below 1%.
“It’s not a good time to be a saver in today’s market, ” said spokeswoman Charlotte Nelson.
Is there anything I can do to get a better savings rate?
One way of achieving a secure income is to opt for a fixed-rate savings bond. But some may feel that the rates on these are paltry: even bonds on sale today that involve locking your money away for five years are only paying an average of 2.05% – down from 2.1% on the day of the EU referendum. New one- and two-year fixed-rate bonds are paying an average of 1.17% and 1.41% respectively. But these deals may not last for long.
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