Few can now be unaware that interest rates fell once again in August. The Bank of England had held the base rate at 0.5% for a long time, and many speculated we would see a rise before too long. In the event, the opposite happened – the Bank cut the rate once again before August was out, this time to a headlining 0.25%.

This led to a cut in interest rates, and not just for savers either. Some people with mortgages have seen a drop in the rate they pay as well. However, it would be foolhardy to assume everyone with a mortgage has seen a drop in interest rates.

How can this happen?

Many banks and building societies increased the rates they were charging on a number of their mortgages before the rate cut was announced. This meant that while they had to pass on the cut, they had already planned for it by increasing the interest rate prior to this. This doesn’t apply to all mortgages and products, but certainly some have been affected in this way.

Furthermore, while some banks have passed on the cut to their customers – something that was instructed to happen by the Governor of the Bank of England, Mark Carney – others have chosen not to. Only around 75% of people on standard variable rate mortgages have received the 0.25% cut.

What about the average mortgage rate?

This has been seen to drop in value, although not by as much as has been expected. At the beginning of August, the average rate stood at 4.8% across the board. This had dropped by 0.17% by the beginning of this month, falling to 4.63% as a result. This is some way off the 0.25% cut made to the base rate by the Bank of England.

Tracker mortgages are now identical to those seen in July

This is of particular interest – and will be disappointing to anyone on a tracker mortgage who was hoping to get a drop in their interest rate. A two-year tracker had an average figure of 2.01% in July. This increased the following month to 2.13% before falling to a low of 1.94% in September. This came after the rate cut by the Bank of England. However, we are now back to the same average figure we had in July, which is 2.01%.

While this is no doubt disappointing for mortgage holders who haven’t seen a drop in rates, it is heartening to know rates on the whole are still at record lows. Savers are arguably even more troubled as they have faced drop after drop in interest rates since August alone.

Quite what the future holds remains to be seen. No one is sure whether the Bank of England would have cause to reduce the base rate even further, although this would seem unlikely at the present time. It would seem variable rate mortgages are a prime target for increases at the moment.

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