The Bank of England announced today that bank rate has been cut to 0.25% – a new all-time low.
This has been cut from 0.5%, which was in itself a historic low. This most recent cut is a response to economic uncertainty and shock following the UK’s decision to leave the European Union back in June.
For some people, this could potentially be beneficial. If you are on a tracker mortgage, your monthly repayments vary depending on the Bank of England’s base rate. Now base rate has gone down, those of us on tracker mortgages could potentially be slightly better off each month.
That said, over the last few years fewer and fewer people have been taking on tracker mortgages- instead opting for fixed rate mortgages. This is because for the most part, people have been anticipating a rise in bank rate from the already-low 0.5%, not a cut. In 2015, the vast majority of new loans taken out were fixed rate – if you’re one of these people in a fixed rate mortgage, you won’t be seeing a reduction in your payments.
By cutting Bank Rate, the government is essentially trying to encourage the general public to spend more. This is accomplished through two strategies – cutting the cost of mortgage repayments as mentioned above, and also cutting the return users get on their savings. This gives people more money to spend, and discourages people from saving.
For more advice on how this may affect you in particular, and for more specialist financial advice in the wake of these changes, speak to one of our independent financial advisors who will be able to work through your options with you and decide what the best course of action is for you.