There was talk it was going to happen, and last week we finally saw something we never dreamed would actually take place. The Bank of England has slashed the base rate from the historic low of 0.5% (reached in March 2009) to just 0.25%. This reaches a new low that many will never have seen before.
There has been much talk of how some people have got used to the low base rate, and yet now it has gone lower still. This won’t be the case for ever, of course, but for now many people are wondering whether it might mean they get even cheaper mortgage rates.
The position on tracker mortgages
If you have a tracker mortgage, it is tied to whatever happens to the base rate. This means an increase would see an associated increase in your mortgage payments. Similarly, a decrease would mean you would get a cheaper mortgage payment as a result.
There is a legal requirement to honour rises and falls in the base rate, so anyone with a tracker mortgage will be celebrating at the moment. However, it may take time before those changes are passed onto the mortgage holders. Many banks and building societies offering tracker mortgages have confirmed they will pass on the cut from 1st September this year.
However, the real winners include those who have a tracker mortgage with HSBC or First Direct. They cut their tracker mortgage rates from 5th August, right on the heels of the announcement of the base rate cut.
What about those on standard variable rate mortgages?
Many lenders, including Halifax, Nationwide, Barclays and Virgin Money, have announced they will cut rates accordingly for these mortgages as well. This too will happen from 1st September.
However, a few lenders have yet to commit either way. TSB and the Skipton Building Society are among those who are reviewing their rates at the present time. It is likely that some will not commit to dropping rates even further for mortgage holders, although this remains to be seen.
The real losers in all this will be those on fixed rate mortgages who won’t see any drop in the amount they pay each month. And of course, savers will be disappointed as they are already coping with very low rates that provide little if any return on their money.
Suffice to say if you have a fixed rate mortgage, it might be an idea to look around and see whether there is any chance you could switch to another deal in the near future. Some people have seen cuts to their mortgage rates as a result of the reduced base rate, but in some cases they are still paying more than they could be.
A good example is the Barclays 4.99% deal, which has been reduced to 4.74%. However, this is still way above some other deals. So if you are tempted to shop around, now might be the time to see what you can find.