The Bank of England cuts interest rates to 0.25 per cent

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The Bank of England (BoE) has reduced interest rates from 0.75 per cent to 0.25 per cent to help shore up the UK economy amid the current Coronavirus outbreak.

The Bank of England (BoE) has reduced interest rates from 0.75 per cent to 0.25 per cent to help shore up the UK economy amid the current Coronavirus outbreak.

In an announcement this morning (Wednesday, March 11), the BoE governor Mark Carney said the cuts would help free up billions of pounds for banks to help support the economy, as the borrowing cost rates fall to their lowest level in history (BBC News).

An unscheduled moved, and the last act in Mr Carney’s six-and-a-half-year reign as governor, the cut is intended to help reduce the potential risk of financial distress caused by Coronavirus for households and businesses alike. The announcement also comes ahead of Rishi Sunak’s first budget as chancellor, and the first since December’s general election. 

How does the interest rate cut impact mortgages?

The news around the BOE’s interest rate cuts could signal good news for homebuyers, especially those looking at variable-rate and tracker mortgages.

The fall in interest rates will have no impact on those who currently have a fixed rate mortgage. This is because the interest rates on this type of mortgage is fixed for a specific term (usually between two – five years).

In time it is expected that the rates on new fixed rated mortgage deals will drop, however homebuyers may need a bigger deposit to qualify for the lower fixed rate (The Guardian). 

If you have a variable-rate or tracker mortgage you will reap the benefits of the rate drop, as this is directly linked to the rate set by the BoE.  In short, this may see your mortgage payments fall and could make a variable or tracker mortgage more appealing to potential homebuyers (The Telegraph). 

Commenting on the interest rate cuts, Martin Lewis, found of MoneySavingExpert.com, said: “The financial winners are those on variable and tracker rate mortgages. They will see cost cuts of – very roughly – £25 per month per £100,000 of mortgage.

“And while it’ll take a week or two to factor through, it’s likely we’ll see the rate of new mortgage fixes drop too – meaning it will then be a very cheap time to remortgage.” (MoneySavingExpert).