The Bank of England has taken a decisive step by reducing interest rates from 4.75% to 4.5%, marking the lowest level since June 2023. This move aims to alleviate borrowing costs for homeowners and impact savings returns in the coming months. The interest rate cut is part of broader efforts by financial institutions to adapt to evolving economic conditions.
Yorkshire Building Society responded swiftly by cutting interest rates by up to 0.31%, with the most significant reductions benefiting borrowers who can provide a 40% deposit. This adjustment will directly influence those with base rate tracker mortgages, as their rates will decrease in line with the Bank's cut. Lenders have been proactive, reducing mortgage rates in anticipation of multiple rate cuts this year.
For remortgagers, a 75% two-year fixed-rate mortgage now stands at 4.39% following the cuts. Borrowers on their lender's standard variable rate (SVR), however, will need to wait and see how these changes affect their repayment terms. The average rate available for a one-year fixed-rate deal is 4.2%, according to Moneyfacts, falling below the base rate. Meanwhile, savers can earn 4.67% on a one-year fixed-rate bond through the savings platform Raisin.
“We may see some lenders introduce more competitive fixed-rate deals in the coming weeks but typically most new deals have already priced in today’s cut.” – Holly Tomlinson, a financial planner at Quilter financial advisers.
Despite the benefits for borrowers, savers may experience less favorable conditions. Returns on savings are generally not explicitly linked to the Bank of England's base rate, yet many savers have already felt the impact of November's base rate reduction. Easy access savings rates are expected to edge lower, prompting experts to advise consumers to seek the best available deals.
“Savers will see easy access savings rates edging lower, so should check out the best buys and switch to a better rate if their bank is offering a substandard deal.” – Andrew Hagger, the founder of Moneycomms.co.uk.
Notably, two economists advocated for a steeper, half a percentage point cut, signaling differing opinions on the most effective strategy for economic recovery. As the lending landscape evolves, financial experts suggest that now might be an opportune time for individuals to secure favorable terms on fixed-rate bonds or ISAs.
“If you’re thinking of putting some cash away for a year or two in a fixed-rate bond or Isa, now would be a sensible time to lock in at current levels while you still can.” – Andrew Hagger, the founder of Moneycomms.co.uk.