The Bank of England slashed the base rate by half a percentage point to just 0.25% on Wednesday to help shore up the economy during the coronavirus outbreak.
The last time the base rate was cut to this level was in August 2016, when it fell from 0.5% to 0.25% following the Brexit referendum. The base rate has been at 0.75% since August 2018, with this week’s cut taking borrowing costs back to the lowest level ever recorded.
The Bank’s Monetary Policy Committee voted unanimously to cut rates as part of a package of measures to help people and businesses weather the economic impact of coronavirus. Here, we explain what the rate reduction means for you and your mortgage.
Homeowners with tracker mortgages should benefit most from the base rate cut, as their rates must follow movements in the base rate. However, whether you’ll see the full half a percentage point cut passed on will depend on whether your deal has a minimum rate, or collar, beneath which your rate cannot fall. Check with your lender if you’re unsure.
Variable rate mortgages
If you’re on your lender’s standard variable rate (SVR), it will be up to your lender to decide whether to pass on the base rate cut in full. You can check our SVR watch to see whether your lender plans to reduce its variable rate. The page is updated as soon as we hear of any changes, and should help you understand the rate you’re paying when shopping around for a better deal.
Fixed rate mortgages
If you’ve locked into a fixed rate mortgage deal, your monthly mortgage payments will be unaffected by the base rate cut. If your fixed rate is due to finish soon, don’t leave it too late to start looking for a new deal. Fixed rates don’t necessarily follow the base rate down, but they are already extremely competitive.
Interest rates cut back to lowest level in history