Decision will lead to lower borrowing costs for those on trackers – but fixed-rate deals will stay the same. The Bank of England has cut interest rates from 4.75% to 4.5% – the lowest level since June 2023. For the majority of borrowers, the answer is no: most people with mortgages are on a fixed-rate deal which means their monthly repayments will stay the same. The cut will translate into lower borrowing costs for homeowners with a base rate tracker mortgage – their rate will fall in line with the Bank’s cut. Borrowers on their lender’s standard variable rate (SVR), or a mortgage linked to it, will have to wait and see. Although it is likely that lenders will reduce their SVRs, they are not obliged to do so and could choose to keep the rate as it is or pass on only some of the cut.
The price of fixed-rate mortgages is linked to the outlook for interest rates. Lenders have recently been reducing mortgage rates in anticipation of several rate cuts this year. On Thursday Yorkshire building society cut interest rates by up to 0.31%, with the biggest reductions for borrowers with a 40% deposit. Rates on its 90% mortgages were cut by up to 0.17%. After the cuts, a 75% two-year fixed-rate mortgage for remortgagers will cost 4.39%.
Holly Tomlinson, a financial planner at Quilter financial advisers, says: “We may see some lenders introduce more competitive fixed-rate deals in the coming weeks but typically most new deals have already priced in today’s cut.”. Today’s decision was expected, but the fact that two economists voted for a steeper, half a percentage point cut may make the markets believe rates will come down further than they had anticipated. Mortgage rates could fall if that is the case.
The returns on savings are generally not explicitly tied to the Bank of England base rate, but Thursday’s reduction is likely to be passed on to many savers who have easy-access accounts and others who do not have accounts with fixed interest rates. Many will have already had their returns cut as a result of November’s base rate reduction. Sign up to Business Today. Get set for the working day – we'll point you to all the business news and analysis you need every morning.
after newsletter promotion. Interest rates on new fixed-rate accounts have already been falling – like fixed-rate mortgages they reflect expectations of where the base rate will be in future. The average rate you can get on a one-year fixed-rate deal, according to Moneyfacts, is 4.2% – below the base rate. However, some banks – particularly the newer names – are keen to attract business so there are some reasonable deals available if you shop around. You can earn 4.67% on a one-year fixed-rate bond via the savings platform Raisin, for example.
