The Bank of England’s base rate fell today for the first time in more than four years (Picture: Bank of England/Getty/Metro.co.uk)
After more than four years of bad news for homeowners with a mortgage, the Bank of England today finally offered a glimmer of light.
Since the onset of the Covid pandemic in March 2020, the Bank has held back from cutting its base interest rate.
Instead, the rate was hiked again and again between the start of 2022 and mid-2023 in the face of soaring inflation, until it reached a 16-year high of 5.25%.
It’s stayed at that level for a year, causing a major headache for those on a tracker mortgage rate on their home – meaning one that’s directly tied to the base rate.
But this afternoon, that plateau finally came to an end, as the Bank announced its committee had decided to bring the rate down to 5%.
As a result, the average homeowner on a tracker mortgage deal will pay £340 less on their annual payment.
It will also impact those on more common fixed-rate mortgages if their deals are coming to an end before the end of the year, by easing the shock they’ll receive.
Industry body UK Finance said the average tracker mortgage borrower will see their monthly payments cut by £28.44, based on outstanding mortgage balances.
Today’s decision from the Bank of England suggests optimism in the economy (Picture: James Veysey/Shutterstock)
Meanwhile, someone on a standard variable rate (SVR) mortgage will see their monthly payments fall by £14.50, if their lender passes on the rate cut in full.
However, the Bank’s decision today does not come close to undoing the financial pain resulting from the high base rate of the past couple of years.
Suren Thiru, economics director at chartered accountants’ body ICAEW, said: ‘While this rate cut marks a notable shift in direction, the financial reality facing households and firms won’t materially change, as this is just one step back from the previous period of 14 rate hikes.’
Earlier today, Bank of England Governor Andrew Bailey signalled that the rate will not fall as quickly as it rose.
He argued ‘we need to make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much’.
Matt Smith, a mortgage expert at Rightmove, warned that we’re unlikely to see the base rate once again fall below 1% – where it stayed for the entire 2010s – any time soon.
He said: ‘The highly-anticipated rate cut has finally arrived, and while those looking to take out a mortgage soon shouldn’t expect to see drastically lower mortgage rates, we would expect the downward trend we’ve started to see continue.
‘This sets us up for hopefully further cuts to come, and when we have seen further reductions to the base rate, people should really start to see the impact.
‘However, it’s important to keep in mind that mortgage rates are widely expected to eventually settle at higher levels than previously, with the market view that the base rate may eventually fall to about 3.25%.’
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