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Update: Bank of England base rate

In August, The Bank of England cut interest rates to 5% from 5.25%.  The first drop in rates since the first Covid lockdown in March 2020. September announced a hold at 5% too. This will affect millions of people's mortgage, credit card, and savings rates. But borrowing costs are still high.

Have you ever thought about why interest rates change?

Bank of England's base rate is what it charges other lenders to borrow money. Hence, customers' loans can be influenced by this number for loans and mortgages. The percentage changes to control UK inflation (the increase in the price of something over time). 

Interest rates are used to influence what people can borrow. A high rate reduces the demand for borrowing. So, the higher rates are designed to discourage people from borrowing, and to incentivise saving.

Will the rates drop again?

"Inflationary pressures have eased enough that we've been able to cut interest rates today,” said the Bank of England governor Andrew Bailey following August's rates decision. But, he warned, "We need to make sure inflation stays low and be careful not to cut interest rates too quickly or by too much."

The Bank also considers other measures of inflation when deciding on rates, some of these are higher than liked, such as increasing price rises in the service sector, from restaurants to hairdressers. 

So, there must be a balance to slow price rises against the risk of damaging the economy. The banks don’t want to cut rates only to raise them again.

How much could interest rates fall?

Through the UK inflation briefly hit the Bank's 2% target in May and June. It is expected to rise slightly before settling back in early 2025. But with interest rates, it’s hard to predict!

In May, the International Monetary Fund (IMF) recommended that UK interest rates should fall to 3.5% by the end of 2025. They advised the Bank to prioritise controlling inflation before adjusting rates. 

But in its latest forecast. The IMF warned that persistent inflation in countries including the UK and the US might mean interest rates have to stay "higher for even longer".

Does this affect you?

According to the government's English Housing Survey, about a third of the population have a mortgage. With over half a million homeowners on a rate that "tracks" the Bank of England's rate. The 0.25 percentage point cut will take monthly repayments down by about £28 on average. Or if you are on a standard variable rate mortgage, about £15.

However, around eight in 10 mortgages are on fixed-rate deals. So, repayments won’t change, but future deals may. According to banking trade body UK Finance, in 2024, about 1.6 million deals are expiring. 

Is your fixed-rate mortgage up for review?

Contact us today to see how we can help find the best rate for you.

SPEAK TO AN ADVISER

Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. A fee may be charged for mortgage advice. The exact amount will depend on your circumstances.

Source: https://www.bbc.com/news/business-57764601
 

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The guidance and/or advice contained within this website is subject to the UK regulatory regime and is therefore targeted at consumers based in the UK.

@ 2020 by Fairview Financial

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A fee may be charged for mortgage advice. The exact amount will depend on your circumstances.

Our standard fee for mortgages is £395 and this is paid when the mortgage is offered. We charge a fee of £295 First-Time Buyers. Other fees may apply depending on the complexity of the work involved or loan amount. The maximum fee we can charge is £795.

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THINK CAREFULLY ABOUT SECURING OTHER DEBTS AGAINST YOUR HOME.

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBTS SECURED ON IT.

BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

EQUITY RELEASE: THIS IS A LIFETIME MORTGAGE. TO UNDERSTAND THE FEATURES AND RISKS, PLEASE ASK FOR A PERSONALISED ILLUSTRATION. CHECK THAT THIS MORTGAGE WILL MEET YOUR NEEDS IF YOU WANT TO MOVE OR SELL YOUR HOME OR YOU WANT YOUR FAMILY TO INHERIT IT. IF YOU ARE IN ANY DOUBT, SEEK INDEPENDENT ADVICE.


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