Interest rates have been reduced from 5% to 4.75%, but not all borrowers will see cuts to their mortgage costs.
The 0.25% cut in the base rate was largely expected, even if Chancellor Rachel Reeves’ budget last week had sown some doubts.
The Bank of England’s (BoE) nine-member Monetary Policy Committee voted eight to one in favor of the cut, which comes after inflation fell below the 1.7% target.
Borrowers with tracker mortgages, and possibly those with other variable interest rates, will see a reduction in their repayments. Sarah Thompson, director of Mortgage Scout, said: “The Bank of England’s cut in the base rate to 4.75% offers the opportunity for more affordable mortgage options. For those on variable rates, this change could mean a monthly saving of around £20.”
However, those looking for fixed-rate offers likely won’t see a big difference.
This is because lenders will have already priced in the current reduction in the base interest rate on their mortgage products in the weeks leading up to the decision.
In reality, Lenders are now starting to raise their rates as forecasts indicate that today’s base rate cut will likely be the last we see this year.
Nicholas Mendes, mortgage technical manager at John Charcol, explained: “Labour’s budget introduced several tax increases last Wednesday, but bond markets reacted negatively when the government debt figures were announced the following day. Since October 30, government bond yields have risen sharply, raising the UK government’s borrowing costs.
“Markets are now concerned that higher government spending could increase inflationary pressures, potentially prompting the Bank of England to slow the pace of future interest rate cuts.”
He added: “Mortgage rates are influenced by a variety of factors beyond bank rates, so a drop in bank rates will not necessarily result in an immediate reduction in mortgage rates across the board.
“When setting their rates, lenders take several elements into account, including their service levels, swap rates and general market conditions.
“An important factor for lenders when determining mortgage interest rates is the swap rate. Swaps are the rates at which lenders exchange fixed interest payments for variable interest payments to manage the risks of long-term loans.
“These swap rates often move in line with expected changes in bank rates, meaning that expected cuts are typically ‘priced in’ well before an official cut in bank rates.
“So if bank rates are ultimately cut, mortgage rates could remain the same or even rise if other factors, such as financing costs or risk assessments, change unfavorably.”