What Is the Bank of England Base Rate?

The base rate is the interest rate set by the Bank of England, influencing the cost of borrowing and the return on savings across the UK. It serves as a benchmark for banks and lenders when determining the interest rates they offer to customers. Changes in the base rate can affect various financial products, including mortgages.

Reasons Behind the Recent Rate Cut

The Bank of England’s decision to cut the base rate to 4.5% was influenced by several economic factors:

• Economic Growth: The UK economy has shown signs of stagnation, with minimal growth in recent months. (theguardian.com)

• Inflation Trends: Inflation rates have been declining, easing some cost-of-living pressures. (theguardian.com)

• Global Economic Uncertainties: Ongoing global economic challenges have contributed to the decision to adjust interest rates to stimulate domestic economic activity.

Impact on Mortgages

The base rate cut has varying effects on different types of mortgages:

Fixed-Rate Mortgages

• Existing Fixed-Rate Mortgages: Homeowners with existing fixed-rate mortgages will not see immediate changes in their monthly payments, as their rates are locked in for the duration of the fixed term.

• New Fixed-Rate Mortgages: Lenders may adjust their fixed-rate offerings in response to the base rate cut. For instance, MPowered Mortgages have recently reduced rates across their fixed mortgage products. (mpamag.com)

Variable and Tracker Mortgages

• Tracker Mortgages: These mortgages directly follow the Bank of England base rate. Therefore, borrowers with tracker mortgages should see an immediate reduction in their interest rates and monthly payments. Existing Mortgage Holders should receive correspondence from their lender shortly outlining any changes to their existing mortgage payments. 

• Standard Variable Rate (SVR) Mortgages: Lenders have discretion over SVR adjustments. Following the base rate cut, some lenders have announced reductions in their SVR mortgages. (mpamag.com)

Is Now the Right Time to Remortgage?

The recent base rate cut has led to increased interest in remortgaging, with searches for “remortgage” projected to rise significantly. (ifamagazine.com)

Homeowners nearing the end of their fixed terms or currently on SVR mortgages might benefit from exploring new deals to secure lower rates.

Considerations for Remortgaging:

• Early Repayment Charges: Assess any fees associated with exiting your current mortgage early.

• Loan-to-Value (LTV) Ratio: A lower LTV can provide access to more competitive rates.

• Credit Score: Ensure your credit score is in good standing to qualify for the best rates.

Impact on the Housing Market

Lower interest rates can stimulate the housing market by making borrowing more affordable. Recent data indicates a 0.7% rise in UK house prices, reaching a record high. (ft.com)

This trend may continue as lower mortgage rates attract more buyers into the market.

What Should You Do Next?

Given the current financial landscape, consider the following steps:

• Review Your Mortgage: Assess your current mortgage terms and determine if switching to a different product could offer savings.

• Consult a qualified mortgage adviser: Seek professional advice to understand the best options tailored to your financial situation.

• Stay Informed: Keep abreast of further rate changes and lender announcements to make timely decisions.

Conclusion

The Bank of England’s base rate cut to 4.5% presents opportunities for homeowners and prospective buyers to benefit from lower mortgage rates. By understanding how this change affects various mortgage products, you can make informed decisions to optimize your financial well-being.

Note: This article is for informational purposes only and does not constitute financial advice. Always consult with a qualified mortgage advisor before making any financial decisions.

Disclaimers

Your home or property may be repossessed if you fail to keep up with repayments or any debt secured against the property. 

You may have to pay an early repayment charge to your existing lender if you remortgage early.