Following the latest review by the Monetary Policy Committee (MPC), a Bank of England interest rate cut has been confirmed. The current rate now stands at 4%, which is a quarter-point decrease from the previous rate of 4.25%.
Will there be further interest rate cuts this year?
This latest reduction to the base rate is the fifth cut since last August. Economists have predicted that one more cut will be made by the end of the year. This is expected to be a further quarter-point reduction, bringing the base rate down to 3.75%.
Inflation has remained persistent and there was an unexpected jump in inflation figures for the year to June. The inflation rate now stands at 3.6%, which is still considerably higher than the Bank of England’s target of 2%. Employment and wage growth are weaker, with the unemployment rate climbing to 4.7%, the highest level since June 2021. Another concern is the introduction of US tariffs.
As such, larger reductions or more cuts this year have currently been ruled out in the predictions. This is because the BoE is committed to taking a careful and gradual approach when it comes to cutting rates. The bank has reiterated that it’s essential to strike a balance to get inflation under control while also supporting growth in the UK economy.
How will the Bank of England interest rate cut affect mortgages?
The base rate determines what the BoE charges other banks and building societies to borrow money. This means that the lower rate will help to cut the cost of borrowing for businesses. As lenders’ borrowing costs will be reduced, a welcome decrease in mortgage rates will be seen.
The English Housing Survey has reported that a mortgage is held by just under a third of households. Of these, about 600,000 hold tracker mortgages that track the BoE base rate. These households can now look forward to a reduction in the interest rates they pay, lowering their monthly mortgage payments.
For borrowers paying a discounted variable rate or a standard variable rate, the rates they pay may be reduced if their lenders decide to pass on some or all of the interest rate cut. However, lenders are not obliged to do this.
Despite this latest cut to interest rates, mortgage rates are still higher than they have been for many years. This means that anyone who has a fixed-rate deal coming to an end will likely have to pay more when changing to a new deal than when they took out their current deal. In the meantime, they won’t experience a change to the current rate they pay.
Get personalised advice on your mortgage options
If your fixed rate mortgage is due to end within the next 6 months, it’s recommended to secure a new rate now. Leaving the fixed term to expire will result in you being switched to your lender’s standard variable rate, which is typically more expensive than other rates. Securing a new rate before the term ends avoids this from happening. You also have the option to change to another deal if a better one becomes available before the end of your fixed term.
Our mortgage brokers are here to help you find the best mortgage deal to suit your needs and circumstances. Just give us a call on 01322 907 000 to discuss your options and compare the deals available.