Bank Rate cut: What does it mean for your mortgage?
The Monetary Policy Committee (MPC) at the Bank of England has voted unanimously to reduce Bank Rate by 50 basis points to 0.25%.
The interest rate reduction is intended to support business and consumer confidence during the Coronavirus outbreak. The Bank said it will help to ‘bolster the cash flows of businesses and households, and to reduce the cost, and to improve the availability, of finance’.
What does it mean for mortgage borrowers?
Those on a variable rate – including standard variable rates and discounted variable rates – could see their mortgage interest rate fall in the coming weeks, although this is not guaranteed and is at the lender’s discretion.
Tracker rate borrowers should see their rate automatically track down by the full 0.50 percentage points within one month, unless their mortgage contract specifies a minimum rate – known as a collar.
Fixed rate borrowers on an existing deal will see no difference to their pay rate for the duration of their agreed term.
Those looking for a new mortgage deal could find that rates fall on all types of deals in the next few weeks, meaning it could be a good time to consider remortgaging.
Rob Griffiths, director at the Mortgage Market Alliance, said: “The Bank clearly wants to stimulate the flow of lending out to consumers and businesses and for those seeking a new mortgage or looking to refinance, this is now an opportune time to do so.
“While many lenders’ cost of funds and pricing will not be directly linked to Bank Base Rate, this is still likely to filter through to mortgage rates at some level, which means what was an already highly-competitive market has just got even more so.”
New funding scheme announced
The Bank also announced the introduction of a new Term Funding scheme with additional incentives for Small and Medium-sized Enterprises (TFSME), financed by the issuance of central bank reserves.
Over the next 12 months, the new scheme will offer four-year funding at interest rates at, or very close to, Bank Rate. Additional funding will be available for banks that increase lending, especially to small and medium-sized enterprises (SMEs).