How the cut in BoE base rate may affect you

August 11, 2016 by Brendan O'Neill

Rates

The Bank of England (BoE) recently cut the base rate yet again, down to 0.25%, the lowest it has ever been. The BoE has also indicated that a further rate cut may be possible towards the end of 2016. If you have savings or a mortgage, you may be affected by the latest decision to cut base rates.

People with savings are likely to see a lower return on investments, as interest rates fall. If you have a mortgage, you may receive a reduction in your monthly mortgage payment, although this will depend on a number of factors.

If you have a fixed rate mortgage, you won’t see any difference in your payments as this is due to the nature of the product. Home owners who are on the Standard Variable Rate (SVR) may see a reduction in their payments, although the lender isn’t obligated to lower the variable rate. The average SVR is 4.8%, but the SVR offered by various lenders can differ, with rates from 3.2% to 6.8% available with UK lenders. The BoE has called for lenders to pass the cut in interest rates on to the customer, so they have more disposable income, which will boost the UK economy.

A monthly mortgage payment of a borrower who has the average SVR will be reduced by around £22, if the payment is £779. Someone who has £10,000 in savings, will receive £25 less interest annually.

A CeMAP qualified mortgage adviser will know which lenders are passing on the rate cuts, which will help buyers looking for a competitive rate.